Premium Version With Answer

IT Certification Guaranteed, The Easy Way!
Exam : P3
Title : Risk Management
Vendor : CIMA
Version : V12.95
1
QUESTION NO: 1
H Ltd is a company providing postal and courier services to small businesses. Customers
pay a monthly or annual subscription fee to use the service, plus a very small fee for each
item delivered.
A year ago, H employed a new sales team. Their remuneration is dependent on the number
of new customers they sign up. Sales increased dramatically in the first six months, but now
difficulties are emerging such as new customers dropping their subscription once the initial
period has expired; subscriber direct debits being returned unpaid; subscribers going out of
business and other similar issues.
Which of the following would be appropriate to help resolve these problems?
A. Alter the pricing structure in order to increase the price for sending each item but decrease
the subscription element of the fee.
B. Ensure that a credit check is carried out before a subscriber is accepted.
C. Reduce the rate of commission payable to any sales person who fails to sign up at least
an agreed minimum number of customers each month.
D. Alter the commission arrangements so that commission is payable only when the
subscriber signs up for a second year.
E. Preparing a monthly report for sales persons detailing the performance of each new
customer they have signed up over the previous year.
Answer: B D E
QUESTION NO: 2
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.
Answer: C
QUESTION NO: 3
A capital investment project shows a NPV of £3,450 at a discounted rate of 8% and an NPV
2
of £1,210 at a discounted rate of 9%.

What is the internal rate of return?
A. 11.85%
B. 10.85%
C. 10.54%
D. 9.54%
Answer: D
QUESTION NO: 4
D plc is a public relations company. Shares in D plc have recently been listed on the UK
stock exchange.
D plc has an internal audit department that reports to the Chief Executive Officer (CEO). The
CEO is considering outsourcing internal audit to an audit firm, which would not be the firm
that conducts D plc's external audit.
Identify THREE advantages to D plc of outsourcing internal audit in this way.
A. Doing so may improve independence.
B. Decisions relating to internal audit can be based solely on cost.
C. Internal audit will have a better understanding of D plc's objectives and culture.
D. Specialist skills may be more readily available.
E. Risk of staff turnover is passed to the outsource company.
Answer: A D E
QUESTION NO: 5
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
Answer: C E
QUESTION NO: 6
You are a consultant to an international charity which provides aid to people displaced by
war, civil unrest, and natural disaster. The charity has requested you to carry out a post
implementation review on their new procurement and logistics system. Which TWO of the
following should you be most concerned about when conducting this review?
A. An assessment of how the aid is used once it has arrived at its destination.
B. The identification of the reason for any cost overruns so as to be able to assign
3
responsibility to particular individuals so that the management can deal with them as they see
fit.
C. An assessment of the extent to which the new system has led to more efficient delivery of
aid to those in need.
D. To create a record of good and bad experiences in relation to the implementation of the
project so that the charity is able to learn from them should they decide to implement a
similar project in the future.
Answer: C D
QUESTION NO: 7
JKL makes large export sales to customers in country X, whose currency fluctuates
significantly against JKL's home currency JKL also makes large purchases from suppliers in
countrrOC All of these transactions are in country X's currency JKL'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 JKL'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 JKL has a currency risk which is not actively hedged Which of
the following statements are correct? Select ALL that apply.
A. Risk reports can change behaviour
B. Risk reporting is a bad thing
C. The board may be concerned it will be criticised if it does not hedge
D. The board does not want to be blamed for ignoring a risk.
E. Risk reporting drives the whole risk management process
Answer: A C D
QUESTION NO: 8
H manufactures and sells healthy dietary supplements. The company recruits individuals as
part-time agents to sell its products to friends and colleagues. These agents are required to
buy H's products and to resell them at a small mark-up.
For a fee, H will provide agents with training in persuasive selling techniques. Agents who
pass exams at the conclusion of this training can become distributors. Distributors buy bulk
quantities of H's products at a discount and can recruit their own sales agents. Those agents
can also take training and can recruit agents of their own.
At what stage does H stop being a legitimate business and become a pyramid selling fraud?
A. When it asks its agents to buy product and marketing material up front.
B. When it offers returns on its agents' investments that seem remarkable.
C. When it offers its agents more reward for recruiting other agents than for selling its
product.
D. When its training programmes promise to unlock the secret of selling its product.
Answer: C
QUESTION NO: 9
Match the descriptions shown in the boxes below with the method of quantifying risk
exposure it best describes.
4
Answer:
QUESTION NO: 10
Multinational companies have a variety of methods by which to manage currency risk.
Select ALL internal hedging methods from the following list.
A. Leading and lagging
B. Invoice in home currency
C. Matching
D. Pooling
E. Money market hedge
F. Forward contracts
Answer: A B C D
QUESTION NO: 11
The government health service in country H employs well over 100,000 staff in various
locations throughout the country. Traditionally, local management has had high levels of
autonomy in relation to personnel issues and there are several different human resources
(HR) managers located across various regions.
The government has decided to introduce a completely new HR/payroll information system to
have just one database containing all relevant information about every staff member on the
payroll (start date, job title, salary and all other details) and to use this information to begin
streamlining recruitment and HR policies.
The government has outsourced the system's development to a reputable company.
Which of the following are disadvantages associated with this IT project?
A. There is a risk that the system will not capture all of the existing terms and conditions of
staff, thus leading to industrial relations problems later.
B. There is a risk that significant anomalies in the current system will be highlighted.
C. Any initial problems in running the system could have serious repercussions as it could
lead to, for example, staff not being paid, payroll tax not being properly collected, and similar
difficulties.
5
D. The system could make it more difficult to employ specialist medical staff on terms and
conditions which are different from the normal terms and conditions available.
E. The amount of data storage space required to run the system may not be available.
F. The government is very heavily dependent on the contractor to whom this assignment is
outsourced and if they do not to perform as required this could have serious consequences.
Answer: A C F
QUESTION NO: 12
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
Answer: D
QUESTION NO: 13
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.
Answer: B C E
QUESTION NO: 14
Which of the following best describes the conflict between maximising profit and maximising
shareholder wealth?
A. Managers are generally more interested in maximising shareholder wealth than in
maximising profits or sales.
B. Profit and shareholder wealth are unrelated.
C. Tax is paid on profit, but not on shareholder wealth.
6
D. Profits can be increased from one year to the next without increasing shareholder wealth.
Answer: D
QUESTION NO: 15
You are in process of compiling a risk register for P, a company which maintains railway
tracks. This helps prevent accidents and ensures the trains are not disrupted due to problems
with the track.
Which of the following statements are valid?
A. A properly compiled risk register will identify all the risks to which P could possibly be
exposed.
B. A risk register should profile each risk in terms of probability and consequence.
C. A risk register should concern itself with only the direct consequences of each risk such as
injury to passengers and ignore indirect risks, such as re-routing trains due to an accident.
D. The risk register for P should be updated frequently: for example, every two weeks.
E. The risk register should specify the individual, or group of individuals, responsible for the
management of each risk.
Answer: B E
QUESTION NO: 16
KLO is a major quoted car rental company The company is considering publishing its first
cyber risk management report AH rental bookings are made online Customers receive a
booking reference number that they use to collect their cars from a convenient branch
Customers enter their credit card details both so that KLO can take payment for their rental
and also so that the customers can be charged automatically for late returns or damage to
cars KLO's management believes that it has three key areas of cyber risk Cyber criminals
may wish to make bookings using fictitious data in order to steal KLO's cars, they may wish
to use customers details to identify addresses of people who are away from home so that
they can burgle houses and they may wish to abuse customer credit card details KLO's
Board is concerned that admitting to the nsk of stealing cars might encourage cnminals to
exploit that vulnerability AJso. it is concerned that customers will be reluctant to rent cars if
that would mean that their homes could be at risk of burglary while they are away The
vulnerability of credit card details seems obvious and so the Board is not reluctant to admit to
that.
Which TWO of the following are correct?
A. The Board should be clear about all sensitive information that the company holds, but
should also be clear about the robust controls in place to safeguard that information.
B. If KLO's Board omits one of more areas of concern from the report then the independent
accountant who will sign the report is unlikely to discover that omission
C. The independent accountant who will express an opinion on the risks and controls will be
unwilling to sign the report unless it contains a full account of all risks and controls
D. The independent accountant's report on KLO's cyber risk management will refer only to
those vulnerabilities that have been identified by KLO's Board
E. Stakeholders will not care about the vulnerabilities faced by KLO provided the independent
accountant can confirm that the company has sound systems in place
7
Answer: A C
QUESTION NO: 17
Company C wishes to recruit an employee who will have responsibility for, among other
things, the receipt and handling of cash. Which THREE of the following would be most likely
to provide useful information about the candidate from the point of view of the Internal
Auditor?
A. The candidate's academic qualifications.
B. References from previous employers of the candidate.
C. The candidate's personal referees.
D. The candidate's membership of a professional body.
E. Confirmation that the candidate does not have a criminal record.
Answer: B D E
QUESTION NO: 18
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
Answer: C D
QUESTION NO: 19
C is an accounts clerKwho is supposed to sign each invoice as evidence that she has
conducted checks against supporting documents Sometimes C signs invoices without
making these checks D is a member of the internal audit team He has been told to conduct
compliance tests on whether C is checking the invoices property Which of the following would
grve D a false sense of assurance that C's checks have been in operation?
Select ALL that appry
A. D reviewed a sample of invoices for purchases of plant and equipment and found that C
had not signed them C explained that she believed that those were authonsed by someone
else although the accounts manual indicates that it was her responsibility
B. asked C a series of open-ended questions about the operation of the purchases system
She did not mention anything about detailed checks of invoices against documents
8
C. D examined a sample of invoices to make sure that they had been signed by C AH had
been signed selected a sample of purchase invoices and compared each to the supporting
documents that C is supposed to review Every one of D's invoices was supported by the
related documents
D. D worked at a spare desk in the accounts department and quietly watched C without
telling her She checked every invoice carefully while D was present
Answer: B C D
QUESTION NO: 20
HGY is a major global corporation that has decided to implement the COSO Enterprise Risk
Management Framework and integrate management practices throughout the organisation
Which THREE of the following would be appropriate for HGY?
A. Authorise managers and supervisors to respond immediately to any risks that emerge
B. Make risk management an element of everyone's responsibility
C. Recruit a Director of Risk, who will lead risk management procedures.
D. Train staff at all levels to identify and report risks to their superiors
E. Create a risk management team that will take responsibility for identifying and mitigating
risk
F. Identify risk as an element of HGY's overall strategy.
Answer: B E F
QUESTION NO: 21
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.
Answer: B D
QUESTION NO: 22
GUJ A small but rapidly expanding company has recently opened several branches in
locations far away from the Head Office. All of the branches are relatively small with no one
branch accounting for more than 5% of turnover. Management has decided that the company
is not yet large enough to install an Internal Audit function but is, nonetheless, concerned
about maintaining adequate control and monitoring at the branches whilst allowing Branch
Managers the opportunity to react to local circumstances as appropriate.
Which of the following measures would assist Head Office management in maintaining
appropriate monitoring and control at the branches?
A. Restricting the autonomy of individual Branch Managers to purely routine matters and
instructing them to refer everything else to Head Office.
9
B. Dealing with all Human Resource, recruitment, and similar issues directly from Head
Office.
C. Arranging visits by senior management to each branch periodically.
D. Instituting the use of a formalised budgetary control system at head office for all branches.
E. Establishing an open communication policy for employees at branches to allow them to
contact Head Office on any matter that concerns them.
Answer: C D E
QUESTION NO: 23
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.
Answer: A B C
QUESTION NO: 24
NLC, a retail chain, is considering moving its information systems which support its point of
sale infrastructure into the cloud.
Which TWO factors should it consider in choosing its supplier?
A. Cheapest option offered
B. Certified security
C. Proximity of facilities to head office
D. Robust service level agreement
Answer: B D
QUESTION NO: 25
ERT is choosing between two maintenance policies for its vehicles. The outcomes of these
policies are difficult to predict and so ERT has run a simu-lation of both.
Policy 1 has an expected annual cost of $400,000 per year, with a standard deviation of
$80,000.
Policy 2 has an expected value of $350,000, with a standard deviation of $150,000.
Which of the following statements are correct?
10
A. Policy 2 is the more risky.

B. Policy 1 will always be the more expensive in any given period.
C. Policy 2 is the more likely to cost more than $500,000 in any given year.
D. Policy 2 has the greater potential upside risk.
E. Policy 2 is clearly the better policy.
Answer: A C D
QUESTION NO: 26
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
Answer: B D E
QUESTION NO: 27
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
Answer: D
QUESTION NO: 28
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.
Answer: B
11
QUESTION NO: 29
Which of the following actions would breach CIMA's Code of Ethics for Professional
Accountants?
A. An accountant has been asked to evaluate an investment opportunity that is open for a
very short time.
The accountant has recommended rejecting the opportunity without doing any evaluation
because he was too busy to study the proposal properly.
B. An accountant has been asked to select a new supplier and has decided to recommend a
supplier based in country A because that will give the accountant an excuse to visit a family
member who lives there.
C. An accountant has been asked to confirm that a complex financial instrument that has
been recommended by the bank is suitable for the company. The accountant does not
understand the instrument, but has confirmed its suitability because senior management
wishes to use it.
D. An accountant has been asked to compile a list of all contacts at the company's bank so
that they can be included in the mailing list for the calendar and coffee mug that are
distributed as business gifts by the company in December of every year.
E. An accountant has been asked to identify the two least profitable factories so that they can
be closed down, with the loss of all jobs. All of the company's factories are located in areas of
high unemployment.
Answer: A B C
QUESTION NO: 30
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.
Answer: B
QUESTION NO: 31
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?
12
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.
Answer: B C D
QUESTION NO: 32
B uses a balanced scorecard to monitor the performance of its divisions.
Classify each of the following decisions taken by a division's management team as either
commercially sound or dysfunctional.
Answer:
QUESTION NO: 33
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
13
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
Answer: C E
QUESTION NO: 34
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?
Answer:
14
QUESTION NO: 35
R plc is considering an investment of $1,100,000 in a new machine which is expected to
have substantial cash inflows over the next five years.
The annual cash flows from this investment and their probability are shown below:
Annual cash flow ($) Probability
200,000 0.4
280,000 0.5
350,000 0.1
At the end of its five-year life, the asset is expected to sell for $100,000. The cost of capital is
5%.
What is the Expected Net Present Value?
Give your answer to the nearest whole $.
Answer:
$82295, $82550
QUESTION NO: 36
Which of the following statements best explains why a corporate treasury department should
be established as a cost centre rather than a profit centre?
A. The Treasury Department should not be encouraged to speculate.
B. The Treasurer should not have a great deal of responsibility.
C. There is no way for the Treasury Department to generate revenue.
D. The Treasurer has the ability to manipulate the Department's reported profit.
Answer: A
QUESTION NO: 37
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
15
Answer: D
QUESTION NO: 38
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.
Answer: B D
QUESTION NO: 39
B is a family run security company with a number of prestigious clients who rely on it to
maintain online access to their CCTV and alarm systems and respond to any detected
intrusions or malfunctions.
It designs and installs security systems for a number of UHNW (Ultra High Net Worth)
individuals who may have several seasonal and city residences largely unoccupied for many
months of the year.
B's reputation as 100% secure is crucial to its on-going success in this very specialised
marketplace.
Select THREE factors which should be given prominence in B's fraud risk management
strategy.
A. B should carry out background security, health and financial checks on all employees,
their immediate family members and associates on an annual basis.
B. B should ask new employees to fill in a declaration that they are honest and have no
criminal convictions for dishonesty. That can be filed as evidence that the company took this
precaution.
C. B should inform clients that they have a stringent anti-fraud policy.
D. B should have an active whistle-blower policy whereby all staff are encouraged by positive
reward to report any suspicions they may have about other employees.
E. B should ensure that employees who design or install security systems are not involved
with the operation of those systems once implemented.
F. B Should revise and publish their fraud policy document to employees every three months,
highlighting any new elements and industry developments.
Answer: A D F
QUESTION NO: 40
You are the management accountant for YY a food manufacturing company with an annual
sales revenue of
16
$6 million
You discover that the production manager's records are inconsistent Raw materials
purchased do not agree with the total recorded for transfers to production plus wastage
There is an average shortfall of 2% of purchases You have investigated and discovered that
there are often errors made during manufacturing that results in food that is safe to eat but.
because of visual flaws, cannot be sold The production manager is supposed to scrap all
such damaged products and write all such losses off as waste You have discovered however
that he has been giving the damaged food to a charity that assists homeless people No
records are made of such gifts in order to conceal the losses due to manufacturing errors
Which of the following actions should you take? Select ALL that apply
A. Instigate disciplinary action this is both theft and poor management
B. Do nothing; this is a good cause and the amount is insignificant
C. Instigate a review of the production process to potentially reduce the amount of wastage.
D. Instigate a confidential but documented review with the production manager and tell him to
stop
E. Instigate a process whereby edible but unsellable items can be given to the charity
officially
Answer: A C E
QUESTION NO: 41
VBN uses a balanced scorecard to monitor the performance of its divisions.
Classify each of the following decisions taken by a division's management team as either
commercially sound or dysfunctional.
Answer:
QUESTION NO: 42
FGT is evaluating the political risks associated with its operations around the world.
17
Which of the following would indicate that a particular subsidiary has a high level of political
risk?
A. Forthcoming elections in the subsidiary's host country.
B. The subsidiary's host country requires the active participation of local partners before the
subsidiary can operate.
C. Company law in the subsidiary host country is lax.
D. The subsidiary is located a considerable distance from FGT's home country.
E. The subsidiary employs a large number of nationals from the host country.
Answer: A B C
QUESTION NO: 43
Smalltown had a problem with people parking cars on the town's mam shopping streets
instead of in the nearby car parks The parked cars created congestion and made it difficult
for delivery vehicles to unload Smalltown's local government had employed traffic wardens to
enforce parking regulations by issuing parking fines to motorists who parked for more than
the permitted 30 minutes.
The local government took further action to deal with this problem It banned parking on the
busiest streets, it introduced parking charges in the remaining streets and it made it free to
park m the town's car parks for up to two hours Fewer people now park cars on the streets
because of the charges, but those who do generate significant revenues for the local
government Fewer traffic wardens are required and so wage costs have reduced The local
goverment auditors have decided to carry out a value for money audit of the parking system
Which of the following is a measure of effectiveness?
A. The main shopping streets are no longer congested
B. The remaining traffic wardens are less stressed because they no longer receive abuse by
motorists.
C. Parking enforcement costs less than before
D. Revenues from parking have increased
Answer: A
QUESTION NO: 44
There are many method for appraising capital projects.
Select ALL correct statements.
A. The time value of money should be the same for all similar competing projects.
B. Decisions should only consider the financial implications of the project.
C. No one method of capital appraisal taken alone is adequate to evaluate competing
projects.
D. Net Present Value evaluation considers a range of different discount rates considering
different risk factors and finance methods.
E. Opportunity cost is only relevant when capital is scarce.
F. All projects should be evaluated using sensitivity analysis.
Answer: A C D
QUESTION NO: 45
18
IOP manufactures aircraft engines. The company is presently engaged in a scenario planning
exercise to consider the implications of a possible ban on the use of fossil fuels by the year
2040.
Which TWO of the following would be realistic responses to the scenario?
A. Work with politicians to discredit the proposed restrictions on the use of fossil fuels
B. Commission research into the development of battery-powered aircraft
C. Adapt existing engine designs so that they can use plant-based fuels, such as vegetable
oils
D. Dispose of manufacturing plant and move into more sustainable transport, such as electric
trains
E. Develop more efficient engines that minimise the use of fossil fuels
Answer: B C
QUESTION NO: 46
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.
Answer: A
QUESTION NO: 47
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
Answer: B D E
QUESTION NO: 48
P Ltd manufactures and sells electrical goods through retail outlets.
N is P Ltd's Sales Director. He has been recently promoted from a senior sales position with
P Ltd. He has been forced to spend the first six months as Sales Director on dealing with an
administrative mess left behind by the previous sales director.
You are a Senior Management Accountant at P Ltd. You have worked with N for many years.
N has worked hard and has made many changes that have brought significant benefit to the
business.
N has asked you to postpone the recording of some purchase invoices so that he will meet
his quarterly targets on profit margin.
What should you do?
19
A. Collect all the facts, distance yourself from the situation but say nothing.
B. Write up the facts of the issue and put it on your files.
C. Document the situation and present the facts to your manager.
D. Do nothing, no rules have been broken, tell N that you cannot do as he asks and that he
needs to abide by the professional codes.
Answer: D
QUESTION NO: 49
B, a construction company, has a policy of carrying out a post completion audit on every
construction project undertaken where the value exceeds $1 million.
What is the role of the post completion audit?
A. To reward staff and celebrate success.
B. To signify the end of the project.
C. To highlight what can be done to improve similar future projects.
D. To apportion blame for things not done well.
Answer: C
QUESTION NO: 50
Physical access controls can greatly enhance the security of company assets.
Select THREE methods by which physical access security can be significantly enhanced.
A. Use of CCTV cameras monitoring all access points, with security guards monitoring
images and a secured system making a recording.
B. Use of one way mirrors, so people can be observed undetected.
C. Use of USB sticks and removable media should be prohibited.
D. Use of access control pads with numerical keys on every door, which is otherwise locked.
E. Personal individual ID card access, logging individual person movement through every
door, which is otherwise locked.
F. Visitors to be logged in by security staff and to be accompanied by a member of staff at all
times until they leave.
Answer: A E F
QUESTION NO: 51
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.
Answer:
$77000
20
QUESTION NO: 52
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
Answer: A
QUESTION NO: 53
A government department is conducting a value for money audit on a school.
The school's pupils sit leaving exams. Classify each of the audit tests as either economy and
efficiency or effectiveness.
Answer:
QUESTION NO: 54
Y plc, a pharmaceutical company, has dealt with a number of risks in the manner indicated
below.
Use the TARA framework to classify each of Y plc's responses.
21
Answer:
QUESTION NO: 55
CH makes a popular type of chocolate bar The bars are made on a production line and are
scanned for size and shape as they move along the line Wrong sized and misshapen bars
are rejected as being poor quality. The scanner detects 90% of poor quality bars. If CH wants
to reduce the risk of poor quality bars being sold to the public it can add a further check by a
person scanning the production line as well. this check would detect 80% of poor quality bars
If the further check was implemented what percentage of poor quality bars would still get
through the checking process?
A. 7.2%
B. 10%
C. 30%
D. 2%
Answer: D
22
QUESTION NO: 56
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.
Answer: C
QUESTION NO: 57
D is a large oil refinery.
The managers have identified four risks shown in the risk map below:
Which of the risk mitigations listed below would be the best for dealing with the two risks
classified as medium likelihood and high impact?
A. Accept
B. Reduce
C. Transfer
D. Avoid
Answer: C
QUESTION NO: 58
With regard to the rote of the audit committee which of the following statements are correct?
A. The audit committee should design the system of internal controls
B. The audit committee should decide annually whether it needs an internal audit function
C. The audit committee should decide annually whether it needs an external audit function
D. The audit committee should review and monitor the effectiveness of the company's
internal audit function
E. The audit committee should provide arrangements for whistle blowing
F. The audit committee should engage consultants to carry out business reviews
Answer: D E F
QUESTION NO: 59
The acronym VPN stands for.
A. Verified Private Network
B. Virtual Private Network
C. Very Personal Network
D. Virtual Personal Network
Answer: B
23
QUESTION NO: 60
K is a large mining company. In its risk report it states that there is a risk of accidents and
injury because of the nature of the industry. It states that it has staff training in place and
complies with all Health and Safety regulations but in spite of this there will still be a residual
risk that accidents and injuries may occur.
A. The shareholders should not invest because there is still a residual risk.
B. The directors are avoiding their responsibilities by saying there is a residual risk.
C. Some risks cannot be eliminated.
D. Accepting a residual risk does not imply the company is reckless.
E. Most companies in this industry will say something similar in their risk report.
Answer: C D E
QUESTION NO: 61
Which TWO of the following are NOT methods used for risk identification?
A. Carrying out interviews on key members of staff
B. Designing a process to deal with complaints
C. Employing external advisors with specialist knowledge
D. Accounting for waste in a manufacturing process
E. Brainstorming ideas with colleagues from different disciplines within the business
Answer: B E
QUESTION NO: 62
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.
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.
Answer: A B C
QUESTION NO: 63
Identify, from the list provided, which category of business risk most accurately describes the
events detailed below.
24
Answer:
QUESTION NO: 64
Which of the following is the major advantage of Cloud storage for an enterprise?
25
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
Answer: C
QUESTION NO: 65
Which of the following statements concerning the role of the Audit Committee is correct?
A. The Audit Committee should provide arrangements for whistle blowing.
B. The Audit Committee should design the system of internal controls.
C. The Audit Committee should engage consultants to carry out business reviews.
D. The Audit Committee should review and monitor the effectiveness of the company's
internal audit function.
E. The Audit Committee should decide annually whether it needs an internal audit function.
F. The Audit Committee should decide annually whether it needs an external audit function.
Answer: A D E
QUESTION NO: 66
Y Company wishes to recruit an employee who will have responsibility for the receipt and
handling of cash From the point of view of the internal auditor which THREE of the following
would be most likely to provide useful information about the candidate"?
A. Confirmation that the candidate does not have a criminal record
B. The candidate's personal referees
C. The candidate's membership of a professional body
D. The candidate's academic qualifications.
E. References from previous employers of the candidate.
Answer: B C E
QUESTION NO: 67
TRF is conducting a post completion audit on an investment in a pollution control machine
that has reached the end of its five year useful life.
TRF could have been heavily fined if the machine had failed to keep pace with the output of
emissions, measured in units. TRF's cost of capital is 10%. When the machine was
purchased, there was a choice of three machines on the market:
TRF purchased the Big machine, but annual requirements only exceeded 600,000 once, in
year 3, when
720,000 units of emissions were emitted.
Calculate the amount that the post completion audit shows TRF overpaid for the ownership
costs associated with this machine.
Give your answer to the nearest whole $ (in $'000s).
Answer:
$12582000
QUESTION NO: 68
26
JHU has recently completed an eight year project. The project was evaluated at a discount
rate of 10% and was accepted because the net present value was $18 million.
In year 3 of the project there was a significant unexpected repair arising because of the
implementation stage of the project was rushed and some checks on equipment were
skipped to save time. The cost of this was $8 million.
In year 8 of the project the costs of dismantling the project were $11 million more than
anticipated because of unexpected changes to the law concerning disposal of industrial
scrap.
How should these findings be reflected in the post completion audit?
A. Poor project management cost the entity $6 million, to the nearest million.
B. Poor project management cost the entity $11 million, to the nearest million.
C. Poor project management cost the entity $5 million, to the nearest million.
D. Poor project management cost the entity $16 million, to the nearest million.
Answer: A
QUESTION NO: 69
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.
Answer: A B
QUESTION NO: 70
Which of the following statements concerning the use of balanced scorecards to measure
divisional performance is correct?
A. Dysfunctional behaviour is more difficult than under traditional reporting because a wide
range of factors will be measured and reported.
B. Dysfunctional behaviour is impossible because divisional managers are evaluated on so
many different decisions.
C. Contradictory and inconsistent targets prevent balanced scorecards being a useful tool for
performance evaluation.
D. The input for balanced scorecard reports comes from many sources so it is not possible to
misrepresent performance.
Answer: A
QUESTION NO: 71
ABC is an online retail chain which operates on a 24/7 basis It has been updating its Cyber
Security processes and has implemented a centralised monitoring process to track activity
27
through its web access portal Which of the following activities will increase the awareness of
its cyber security risk most effectively?
A. ABC should monitor and record every device type used for access
B. ABC should monitor and record every out of hours access
C. ABC should monitor and record all failed access attempts.
D. ABC should monitor and record every keystroke of every user.
Answer: C
QUESTION NO: 72
CVB is a consulting firm that occupies a large office with many individual staff offices Staff
access the corporate network through a wired network AM work files and company emails
are accessed through this network CVB is upgrading its office heating system At present,
each room in the building has a simple, mechanical thermostat that can be used to regulate
the heating CVB plans to install smart thermostats in each room These will make it possible
to reduce heating costs by monitoring room temperatures centrally, using software that will
be installed on the corporate network It would be expensive to connect the thermostats to
CVB's existing wired network but it would be possible to connect a wireless router to the
network so that CVB could install wireless smart thermostats instead The software on the
network's server could then monitor and control the thermostats via the Wi-Fi connection that
would be created by the wireless router.
Which TWO of the following statements are correct?
A. Security concerns should not prevent CVB from upgrading its heating system
B. The wireless thermostats will be designed to be secure
C. Cyber criminals could not identify and exploit vulnerabilities in the heating system
D. The wireless thermostats could enable a breach of CVB's data
E. Wired network connections are outdated and should not be used
Answer: A D
QUESTION NO: 73
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
Answer: B D
QUESTION NO: 74
HWG is a large company which grows and processes coffee The coffee is sold to
28
supermarkets, branded with their names for sale as "own brand" products HWG brands and
packages the coffee using the supermarkets' own designs HWG's directors are considering a
strategic proposal to develop a range of coffees to be sold under a brand that HWG will
develop Which TWO of the following should the directors consider as part of their strategic
analysis?
A. The design of packaging for the new brand
B. The reaction of the supermarkets who currently buy coffee from HWG
C. The sales volume forecast for the new coffee
D. The choice of name for the new brand
E. Recruiting a marketing firm to advertise the new coffee
Answer: B C
QUESTION NO: 75
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.
Answer:
29
QUESTION NO: 76
Why is it potentially useful for an organisation to maintain a risk register?
A. To ensure that recognised risks are adequately managed.
B. To ensure that there are no undiscovered risks.
C. To eliminate all recognised risks.
D. To provide the risk manager with a role.
Answer: A
QUESTION NO: 77
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.
30
Answer:
QUESTION NO: 78
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.
Answer: A
QUESTION NO: 79
H has a floating rate loan that it wishes to replace with a fixed rate. The cost of the existing
loan is LIBOR +
31
4%. H would have to pay a fixed rate of 8% on a fixed rate loan. H's bank has found a
potential counterparty for a swap arrangement.
The counterparty wishes to raise a variable rate loan. It would pay LIBOR + 1% on a variable
rate loan and
9% on a fixed rate.
The bank will require 10% of the savings from the swap and H and the counterparty will
share the remaining saving equally.
Calculate H's effective rate of interest from this swap arrangement.
A. H would pay 6.2%
B. H would pay 6%
C. H would pay Libor + 1%
D. H would pay 6.4%
Answer: A
QUESTION NO: 80
RFG is considering a major expansion that will result in a more diversified business model.
At present, RFG's market capitalisation is $240 million. This is based on a beta of 1.6. The
risk free rate is 4% and the market rate of return is 9%. RFG is financed entirely by equity.
The company generates an annual cash surplus of $28.8 million.
The expansion will cost $50 million and will generate future cash flows of $12 million in
perpetuity. This new business will reduce RFG's beta to 1.4.
Calculate the adjusted present value of the expansion.
A. $81 million
B. $131 million
C. $321 million
D. $59 million
Answer: A
QUESTION NO: 81
A patient has been prescribed a new medicine by their physician. The medicine is
accompanied by a leaflet describing potential adverse effects associated with taking it. Most
of these potentially adverse effects are trivial, but the leaflet states that three patients in every
10,000 who take the medicine suffer a severe reaction requiring urgent medical attention.
Which of the following statements is true?
A. Statistical probabilities mean very little in themselves when dealing with decisions that
could have serious consequences, such as whether to take this medicine.
B. The patient should ignore the risk because there is only a 0.03% risk of a severe adverse
reaction.
C. Statistically, the medicine is safe.
D. The patient should not be concerned because only those few patients who are susceptible
to this reaction are at risk.
Answer: A
QUESTION NO: 82
32
Which of the following is an ethical dilemma?

A. A company is considering giving poorly-paid staff a generous pay rise.
B. A company is deciding whether to issue debt or equity.
C. A company is deciding whether to make a substantial bonus payment to its directors by
means of cash or shares.
D. A company must decide whether to settle a claim from an employee who appears to have
fabricated a workplace injury. The company want to avoid the cost of defending the claim.
Answer: A
QUESTION NO: 83
JKL is a retailer with more than 45 shops around the country. The directors suspect that a
serious fraud has occurred at one of the branches and a team of internal auditors has been
sent to investigate An analytical review investigation shows that sales revenue is in line with
budget, but overtime payments to shop staff exceed budget by 20%.
How should the internal audit team proceed?
A. Increase the evaluation of control risk
B. Conduct additional detailed testing on overtime payments
C. Increase the evaluation of inherent risk
D. Conduct additional detailed testing of all figures.
Answer: B
QUESTION NO: 84
R is a manufacturer of biscuits. The market for biscuits is extremely competitive with many
companies competing for contracts with large supermarkets. The intensity of the competition
means that prices are kept low; and the buyers can demand higher levels of quality, and
greater flexibility in supply arrangements.
Which of the following represent ways that the use of an Information System could help R to
win and retain supermarket contracts in such a competitive market?
A. It could facilitate product ordering and selection by the use of Electronic Data Interchange.
B. If R's system is integrated with that of a particular supermarket, then this will make it more
expensive for the supermarket to change to a different supplier.
C. It would mean that R's products would be more prominently displayed on the supermarket
shelves.
D. It could be used to facilitate more timely and accurate delivery which would minimising
waste.
E. If R's system is integrated to that of a particular supermarket then other supplier's systems
cannot also be integrated to that supermarket system.
Answer: A B D
QUESTION NO: 85
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
33
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
Answer: C
QUESTION NO: 86
H is a departmental manager in a private college. The main measure of performance used to
assess the Department Manager's effectiveness is meeting the college budgets. The budget
for each year is based on the actual expenditure of the previous year adjusted for specific
one-off items.
Which of the following would arise from using the meeting of this type of budget as a
performance measurement?
A. Cost overruns because managers might fail to meet their budgets.
B. Managers taking on new projects that have too much risk attached to them.
C. Managers engaging in unnecessary spending in order to avoid having their budgets
reduced the following year.
D. Management of various departments not cooperating sufficiently with each other because
each is very concerned that to do so would incur extra costs against their budgets.
E. Management refusing to provide some necessary service to students (for example, extra
tutorials) because it would cause their budget not to be met.
F. Management taking more than the optimal number of students into their department.
Answer: C D E
QUESTION NO: 87
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.
Answer:
34
QUESTION NO: 88
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.
Answer: A D E
QUESTION NO: 89
P Ltd, a service company, is seeking to recruit engineers to work in its maintenance division.
Which TWO of the following suggestions will be most likely to help prevent fraud when
recruiting the engineers?
A. Checking that the engineers have previous experience in a similar business.
B. Checking that the engineers do not belong to a union.
C. Checking that the engineers have a professional engineering qualification.
D. Taking up references from previous employers.
E. Having a defined fraud policy statement that includes recruitment issues.
35
Answer: D E
QUESTION NO: 90
RFD, a listed company, is considering making an investment in a risky new venture. RFD has
a substantial cash surplus that will be used to acquire the necessary resources. It is unlikely
that RFD would have been able to raise finance for this investment because the company is
already highly geared.
Which of the following statements about stakeholders' conflicting interests are true?
A. RFD's shareholders are exposed to the systematic risk from this project and the directors
are exposed to total risk.
B. RFD's lenders are likely to suffer a greater risk than RFD's equity investors.
C. Neither RFD's shareholders or lenders are likely to have the means to prevent the
directors from making this investment.
D. RFD's existing employees are likely to enjoy a significant upside risk from this project.
E. The diversification of RFD's interests will reduce the risks for all stakeholders.
Answer: A B C
QUESTION NO: 91
TYU is a retailer selling televisions. The company is financed wholly by equity.
Why might TYU be exposed to interest rate risk?
A. Customers' disposable income may change.
B. TYU's competitors may have variable rate borrowings.
C. TYU's suppliers may have borrowings.
D. TYU's cost of capital will vary with interest rates.
E. TYU's competitors may have fixed rate borrowings.
Answer: A B C
QUESTION NO: 92
M is a multinational IT company with headquarters in Asia and with operations in all
continents.
It is now trying to expand its operations in Europe. This is seen as a major challenge as the
European market is very well developed with established players in fierce competition against
each other.
As well as developing and producing its own products, it sources products across Asia,
America and Europe as part of infrastructure deals which have to include as much of its own
equipment as possible. In doing this, transfer prices 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 times with sales cycles running at 3-4 months.
The longer sales cycle against committed transfer pricing presents problems as customers
expect quotes to be valid for 90 days whereas M's suppliers reserve the right to revise pricing
at the end of every month with quotes only valid for 8 days in the following month.
How should M deal with this problem?
A. Use a centralised treasury function to set up unilateral netting so that all trades can be
balanced off against each other before any money is transferred.
36
B. Offer a small discount for any customers who pay in M's home currency.
C. Do nothing, everyone is in the same situation.
D. Incentivise sales persons to be more accurate when forecasting prices.
Answer: A
QUESTION NO: 93
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.
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.
Answer: A B C
QUESTION NO: 94
S Doc is an out-of-hours service provided by a country's government. The service allows
members of the public to call and speak to a nurse who can advise on medical situations
which are not obviously emergencies.
Depending on the situation the caller can be referred to the full emergency services, or be
advised to go to Accident and Emergency at the nearest hospital. Alternatively, a callout from
a general practitioner (GP) can be organised; the caller can be advised of where GP services
are available; advice can be given over the phone; or a decision can be taken that no further
action is required at least until normal services resume on the next working day.
There has been a suggestion that the nurses who take these calls could be replaced by
suitably trained operatives who have available to them a specially designed expert system.
Which of the following are advantages of using an expert system instead of nurses?
A. The operatives would be too careful and therefore would recommend unnecessary
treatments or interventions.
B. Some callers may present with complicated scenarios that a non-medically trained
operative or expert system would be unable to recognise (for example, psychological issues).
C. Using an expert system would make operatives less inclined to feel sorry for the caller and
ensure that only relevant facts were considered in coming to a decision.
D. The use of an expert system would ensure that only relevant questions were asked of the
caller and that operatives did not miss something vital due to distraction or fatigue.
E. The expert system will always follow the same path whereas the nurses may have more
37
knowledge about some health issues and very little about others.
Answer: C D E
QUESTION NO: 95
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
Answer: B
QUESTION NO: 96
M built a large factory last year and it has just been completed. The initial outflows on this
project have a present value of $400 million and the entire project has a net present value of
$30 million.
The initial phase of the project caused problems and there was an overspend of $35 million
as there was unstable soil. The foundations had to be underpinned with large steel bars to
ensure the building would be safe. There was no other suitable site for the project.
The construction could not be abandoned as the site would have had very little commercial
value.
The Internal Audit department has been asked to carry out a post completion audit. What
issues should it concentrate on?
A. The audit should consider the initial survey report when the land was purchased to see if
the survey mentioned the unstable soil.
B. The audit should look at documentation to ensure proper procedures were followed at all
stages of the project.
C. The audit should consider what lessons could be learned for future projects.
D. The audit should find out who was to blame for the project being over budget.
E. The audit should consider whether it should have built the factory without underpinning
and sold it on quickly.
Answer: A B C
QUESTION NO: 97
SDF has a variable rate loan of $100 million on which it is paying interest of LIBOR + 2%.
SDF entered into a swap with CV bank to convert this to a fixed rate 7% loan. CV bank
charges an annual commission of 0.3% for making this arrangement.
Calculate the net payment from SDF to CV bank at the end of the first year if LIBOR was 3%
throughout the year.
Give your answer in $ million, to one decimal place.
Answer:
$2.3 million
38
QUESTION NO: 98
C Ltd is a private, family-owned company which is hoping to become listed on a recognised
Stock Exchange within the next two years. At the moment, the Board of Directors comprises
five directors; four of whom are from the founding family and all of whom are involved in the
day-to-day running of the business. The remaining director obtained a seat on the Board
three years ago as a condition of an investment by a venture capital fund.
The Board meets in half-day sessions once a fortnight and the Board meetings are
reasonably well run. All decisions are taken by the Board as a whole. There are no sub-
committees.
Which of the following steps would it be appropriate for C Ltd to take in the light of the
proposed listing?
A. Appoint enough independent non-executive directors (NEDs) that they make up at least
50% of the Board.
B. Appoint one of the NEDs as Chair of the Board.
C. Insist that the venture capital company director be removed as he is not necessarily
motivated to act in the best interests of C Ltd.
D. Set up at least three sub-committees namely remuneration, nomination, and audit
committees.
E. Ensure that the current executive directors are given 10 year contracts starting on the day
the company is floated, to ensure consistency and continuity in the management of the
company.
F. Set up an "agenda setting" sub-committee consisting of the current executive directors to
decide the agenda for each Board meeting.
Answer: A B D
QUESTION NO: 99
A hospital is part of a government provided health service which is free to patients. The
management of the hospital is concerned with the need to minimise the risks to which the
hospital is exposed from patient litigation.
In this context, which TWO of the following are appropriate steps to manage this risk?
A. Ensuring that patients undergoing procedures sign documentation to confirm that the risks
have been explained to them and that they understand.
B. Allocating a risk score to patients depending on age, general heath and similar
consideration and refusing to admit patients whose risk score exceeds a certain threshold.
C. Ensuring that a policy is in place to transfer or discharge critically ill patients so as to
minimise fatalities in the hospital.
D. Ensure that proper documentation is in place for all patients showing such details as
symptoms, treatments, and test results.
E. The management refuses to allow the hospital to participate in the Major Accident Plan for
the city in which it is located. It believes the Plan could expose the hospital to excessive risk.
Answer: A D
QUESTION NO: 100

Systems Development Lifecycle (SDLC) is used to manage risk within the development of
39
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.
Answer: A C D
QUESTION NO: 101

J plc is a wholesale building supply business. It has a large warehouse where some of its
materials are stored.
Last month three accidents occurred where employees were slightly injured whilst moving
items from the 5th shelf. The 5th shelf is located 15 metres up from the ground.
This is a health and safety risk and could also be a reputation risk in the longer term.
Which of the following risk mitigations should the company employ?
A. Transfer by insuring against this risk.
B. Reduce by storing some items on the first three shelves and storing other items outside.
C. Accept by just accepting this is a risk the company has to take and some employees may
get injured.
D. Avoid by sending the employees on a training course on Health and Safety.
Answer: B
QUESTION NO: 102

W is a construction company which undertakes large projects for governments and other
clients worldwide.
Following extensive tendering processes, contracts are issued for successful tenders, and
projects typically take three to five years to complete. Contracts are normally fixed-price and
many have considerable penalty clauses.
Which of the following would be appropriate policies and controls for W to implement?
A. Unsuccessful tenders should be analysed to establish the cause of them failing to be
awarded the work and help to avoid future failures.
B. Ensuring a consistent separation of duties between those involved in the preparation of
tenders and those involved in the planning of projects.
40
C. Ensuring that the minimum legal wage is paid to all workers on the construction sites.
D. In order to ensure the maximum chance of winning the contract, tenders always commit W
to completing the work at the lowest possible price and in the shortest possible time.
E. Contract terms should be worded precisely so that additional work is not deemed to form
part of the contract.
F. The project steering committee and project board should receive regular project status
reports.
Answer: A E F
QUESTION NO: 103

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
Answer: A
QUESTION NO: 104

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
Answer: D
QUESTION NO: 105

TDC is a company which runs gas-fired power stations in western Europe. The Risk
Committee has just received a report that a power station built to the same design and
41
specification in a developing country has recently collapsed. The causes of the collapse are
unclear but the consequences for TDC would be catastrophic if something similar were to
happen in Europe Which of the following actions being considered by the Risk Committee are
ethical?
A. Commission a reputable firm of structural engineers to carry out a review of all power
stations owned by TDC
B. Send experts employed by TDC to the site of the collapse so that they can gather
information first hand on what happened
C. Draw up contingency plans in case some of TDC's power stations need to be shut down
D. Decide that the information available to date is too uncertain to take any action for now
E. Attempt to increase the level of insurance cover against this type of eventuality
F. Issue a press release confirming that all TDC's power stations are "entirely safe'.
Answer: A B C
QUESTION NO: 106

V buys vegetables and fruit from three farms located in a different part of V's country and
sells them to large supermarket chains.
A recent newspaper magazine had an article on these farms showing that the farms employ
illegal immigrants whose status was used by the factory's owners to force them to work for
low wages and in unpleasant conditions. They are forced to live in small overcrowded
caravans with no running water. They are also given meals which are cold and poor quality.
These farms are located in a developed country with strong labour laws.
Classify each of the following statements as true or false.
Answer:
42
QUESTION NO: 107

YHJ is considering an investment in a project that will cost $20 million. Annual fixed costs will
be $12 million per year, excluding depreciation. Annual sales are forecast at 5 million units,
with a contribution per unit of
$8. After five years the equipment will be worn out and YHJ will have to spend $50 million on
disposal costs.
The discount rate is 10%.
Calculate the sensitivity of the net present value of this project to a 20% increase in the
disposal costs.
A. 11%
B. 13%
C. 31%
D. 20%
Answer: A
QUESTION NO: 108

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
43
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
Answer: A B E
QUESTION NO: 109

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.
Answer: A B C
QUESTION NO: 110

K is a manufacturing company. It has sourced new equipment from the US to equip a new
production facility.
It has to make a payment of USD1,000,000 in 3 months' time.
K's production manager needs to know whether it is cheaper to use a forward contract or a
money market hedge.
Current spot and forward exchange rates are as follows:
Current mid-point money market rates (annual) are as follows:
Ignoring taxation, which of the following statements is correct?
A. The money market hedge saves GBP15,196
B. The forward contract saves GBP2,629
C. The money market hedge saves GBP32,078
D. The forward contract saves GBP1,901
Answer: A
QUESTION NO: 111

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.
44
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.
Answer: A B C
QUESTION NO: 112

E purchases parts for one of the machines it manufactures from Country X Place the risk
classification next to the risk it relates to:
Answer:
45
QUESTION NO: 113

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.
Answer: A B
QUESTION NO: 114

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
46
it.
C. Document the facts and escalate to the trainee's manager.
D. Do nothing, the product was designated as waste anyway.
Answer: C
QUESTION NO: 115

The shares of a company have a beta factor of 1.15. Therefore, which of the following must
be true?
A. The shares have more unsystematic risk than the stock market average.
B. The shares have more systematic risk than the stock market average.
C. The shares have more total risk than the stock market average.
D. The shares have less unsystematic risk than the stock market average.
Answer: B
QUESTION NO: 116

A junior sales clerk at BCD, a wholesale jewellers, received an email which appeared to be
from a well known parcel delivery company informing her that a delivery had been attempted
outside office hours and had consequently failed She was asked to click on a link and
complete some seemingly innocent but logical questions to effect the delivery on the next day
She thought no more about it but was very surprised the next month to be awarded
salesperson of the month as her sales had doubled Unfortunately, on investigation it was
found that this was as a result of several fraudulent orders for high-value items that had
seemingly been placed by an existing customer but delivered to a new address, which turned
out to be a temporary box number The existing customer's credit card had been fraudulently
charged for these orders Which of the following types of cyber-attack had the sales clerk
been a victim of?
A. Botnets
B. Malvertising
C. Trojan
D. Ransomware
Answer: B
QUESTION NO: 117

You are the Management Accountant for P, a food manufacturing company with an annual
sales revenue of $5 million.
You discover that the Production Manager's records are inconsistent. Raw materials
purchased do not agree to the total recorded for transfers to production plus wastage. There
is an average shortfall of 2% of purchases.
You investigated and discovered that there are often mistakes made during manufacturing
that results in food that is safe to eat, but cannot be sold because of visual flaws. The
Production Manager is supposed to scrap all such damaged product and write all such losses
off as waste, but you discovered that he has been giving the damaged food to a charity that
assists homeless people. No records are made of such gifts in order to conceal the losses
due to manufacturing errors.
47
What should you do?

A. Do nothing, this is a good cause and the amount is insignificant.
B. Instigate disciplinary action, this is both theft and poor management.
C. Instigate a confidential, but documented, review with the Production Manager and tell him
to stop.
D. Instigate a review of the production process to potentially reduce the amount of wastage.
E. Instigate a process whereby edible but unsellable items can be given to the charity
officially.
Answer: C D E
QUESTION NO: 118

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.
Answer: D
QUESTION NO: 119

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.
Answer: B D E
QUESTION NO: 120

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
48
supplier.
E. M could check all employees qualifications to ensure they are qualified for their jobs.
Answer: B D E
QUESTION NO: 121

R is a company running gas-fired power stations in Western Europe. The Risk Committee
has just received a report that a power station built to the same design and specification in a
developing country has recently collapsed. The causes of the collapse are unclear, but if
something similiar were to happen in Europe the consequences for R could be catastrophic.
Which of the following actions being considered by the Risk Committee are ethical?
A. Commission a reputable firm of structural engineers to carry out a review of all power
stations owned by
R.
B. Decide that the information available to date is too uncertain to take any action for now.
C. Send experts employed by R to the site of the collapse so that they can gather information
first hand on what happened.
D. Issue a press release confirming that all R's power stations are "entirely safe".
E. Attempt to increase the level of insurance cover against this type of eventuality.
F. Draw up contingency plans in case some of R's power stations need to be shut down.
Answer: A C F
QUESTION NO: 122

A large, publicly funded university is considering introducing a new information system in
order to enhance its ability to store and retrieve academic records for past and current
students, including the registration and deregistration of students.
In conducting an evaluation of the system, which THREE features would the management of
the college be most likely to consider as essential prerequisites to implementation?
A. The system has the capacity to deal with all existing records and all new records to be
created in the foreseeable future.
B. The system is capable of being run in parallel with the current system so as to have the
opportunity to examine and overcome any unforeseen difficulties that might arise.
C. The system has been demonstrated to operate with a degree of accuracy at least as good
as the existing system and as good as that used by similar universities.
D. The system can link seamlessly with the system used by the university for processing
financial transactions and producing financial statements.
E. All information on the system can be accessed easily from outside the university through
the internet.
Answer: A C D
QUESTION NO: 123

The management of U is reviewing internal controls throughout the company. It has noted the
following:-
1. In the trade receivables section, journal adjustments are made by the clerks, without any
reference to their supervisor. Journal adjustments may relate to sales returns, discounts
49
allowed, or transfers between accounts.

2. 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.
Answer: E F
QUESTION NO: 124

Select the most appropriate level of responsibility for managing each of the following risks.
Answer:
50
QUESTION NO: 125

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.
Answer: D
QUESTION NO: 126

A has an opportunity to invest $90,000 in a project that is expected to generate annual cash
inflows of $60,000 for each of the next three years. The project's beta coefficient implies a
discount rate of 12% for this project, based on a risk-free rate of return of 3%.
51
A is prepared to forego the expected cash flows from this project in return for a guaranteed
payment of
$50,000 at the end of year 1, $42,000 at the end of year 2 and $30,000 at the end of year 3.
What is the certainty equivalent value of this opportunity to A?
A. $9,493
B. $25,606
C. $54,120
D. $115,606
Answer: B
QUESTION NO: 127

You are a member of the Chartered Institute of Management Accountants (CIMA) and you
have recently taken up the position of Sales Manager with a company that is facing financial
difficulties. The company's terms include a commitment to maintain specified profitability,
liquidity and solvency measures; failure to do so would render bank loans immediately
repayable. The draft financial statements show that the company has not succeeded in
complying with all of these requirements.
The financial results are very dependent on various estimates such as receivables
impairments. The Chief Executive Officer (CEO) has suggested that these be recalculated so
as to bring the financial results within the requirements of the bank. He has asked you to sign
pre-dated internal documentation which would imply that, as Sales Manager, you initiated
these changes in the belief that they would enhance the accuracy of the Financial
Statements.
Which TWO of the following courses of action available to you would be ethically acceptable
according to the CIMA Code of Ethics?
A. Refuse to sign the documentation on the grounds that you did not initiate this action, and
to give the impression that you did would be unethical.
B. Agree to sign the documentation on the grounds that these matters are highly subjective
anyway and the proposed changes are, at least, plausible.
C. Refuse to actually sign the documentation but make clear to the CEO that you will raise no
objection if he amends the Financial Statements as if you had signed.
D. Seek legal advice on the matter because you feel you are being placed in a very difficult
position.
Answer: A D
QUESTION NO: 128

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?
52
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
Answer: A E
QUESTION NO: 129

In-depth analysis showing the identification and quantification of exposure to financial risk
has become more accessible in recent years. Several varieties of analysis are now available.
A. Value at risk analysis, which has become available through increased computing power, is
now easier to implement and can cater for extreme market conditions.
B. Monte Carlo analysis is a modelling technique which can be applied to financial analysis,
allowing thousands of variables to be integrated together to show standard behaviours and
outlier abnormalities requiring detailed understanding in a 'what if?' environment.
C. Sensitivity analysis involves checking the performance of a financial risk model against the
various interrelationships between the different input variables in the model.
D. Simulation, which is becoming available through standard computing packages, is
complex to implement but dynamic and adaptable to cater for different assumptions.
E. Regression analysis is easy to understand and implement, and based on future
expectations.
Answer: B D
QUESTION NO: 130

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
Answer: B
QUESTION NO: 131

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?
53
A. -$3 million
B. -$0.2 million
C. $1.8 million
D. $2.8 million
Answer: D
QUESTION NO: 132

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.
Answer: A
QUESTION NO: 133

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.
Answer: A
QUESTION NO: 134

Return on capital employed (ROCE) can be a useful measure of divisional performance. For
which of the following types of company is ROCE likely to be most appropriate?
A. Companies in which there is extensive investment in intellectual property and intangible
assets, such as brands and trade marks.
54
B. Companies in which there is extensive investment in physical assets, such as plant and
machinery, with divisions which undertake broadly similar activities.
C. Companies which have been created by extensive acquisition and merger activity and
include divisions engaged in a variety of activities.
D. Companies in the not-for-profit sector.
Answer: B
QUESTION NO: 135

Which of the following statements concerning the role of a non-executive director (NED) is
correct?
A. Individual NEDs should be on at least five boards if possible so as to give them wide
experience.
B. NEDs are not responsible for determining executive directors' remuneration.
C. NEDs should satisfy themselves on the integrity of financial information and should
develop the control systems to ensure that integrity is maintained.
D. NEDs have a key role in removing executive directors.
Answer: D
QUESTION NO: 136

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.
Answer: A
QUESTION NO: 137

H is a farmer. An outbreak of a contagious animal disease has just been detected near the
region where the farm is located. This could potentially lead to substantial financial losses for
H.
In these circumstances, which of the following responses by H is the most appropriate?
A. Avoid the risk by the immediate cessation of all animal farming activities and the sale or
disposal of all animals currently held on the farm.
B. Reduce the risk by strict adherence to all government imposed animal movement
restrictions, by the appropriate use of disinfectants and by similiar precautions.
C. Accept the risk and carry on as previously.
D. Transfer the risk by taking out a substantial level of insurance cover.
Answer: B
55
QUESTION NO: 138

You are a junior accountant in a local accountancy firm with many clients in various
businesses.
Your immediate manager has asked you to collect certain personal details about clients' staff
from the firm's records. You suspect that his intentions are malicious.
You asked your manager to explain why he required these details and he told you it is none
of your business.
What should you do? Select TWO responses.
A. You should stop being impertinent and obtain the details as instructed.
B. You should try to find out what the manager wishes to use the details for.
C. You should keep a log of all the facts that the manager has requested, including the dates
on which those requests were made.
D. You should seek to have a confidential discussion with the manager's superior and
express your concerns.
E. You should raise the matter with the firm's external auditors.
Answer: C D
QUESTION NO: 139

H is a senior production manager for P Ltd which is about to make a strategic decision on
setting up a new production line requiring $3 million of new specialist equipment.
H's daughter is friends with and goes to school with the daughter of T, the sales manager in
KK Ltd. KK Ltd is a potential supplier of the specialist equipment that P Ltd requires.
T owns a holiday home. H's daughter regularly accompanies T's daughter on family
vacations at this holiday home, all at T's expense.
H is the only person working for P Ltd who is qualified to select the specialist equipment. KK
Ltd will definitely bid for the sale.
What should H do?
A. H should exclude KK Ltd from the bidding process.
B. H should declare an interest and withdraw from the assessment process.
C. H should permit KK Ltd to bid, but should insist that T should not be involved.
D. H should declare an interest, giving details of his daughter's friendship with T's daughter,
but should participate fully in the assessment process.
Answer: D
QUESTION NO: 140

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
56
draft financial statements.

E. The Finance Director will be retiring within the next year and a replacement will have to be
found.
Answer: A B C
QUESTION NO: 141

With regard to the internal audit department, which TWO of the following statements are
correct?
A. The internal audit department should co-opt a manager from the department it is auditing
onto the team in order to ensure it can follow the processes applied in that department.
B. The internal audit department should report directly to the board of directors, especially if it
suspects a director has circumvented any internal controls.
C. The internal audit department should make recommendations on actions to be taken
following any engagement within a department.
D. The internal audit department should make recommendations on how to improve the
control systems within a department following any engagement within that department.
E. The internal audit department should follow a planned work schedule which is reviewed at
least annually.
Answer: C E
QUESTION NO: 142

Passwords are frequently used to control access to computer systems.
Which of the following characteristics should a password have in order to make it effective?
A. Passwords should be short words or names that users will easily remember.
B. Passwords should contain 20 characters or more.
C. Passwords should be changed on a regular basis.
D. The strength of a password is increased by using upper and lower case and including
numerals.
E. Passwords should be written down in a secret place.
F. Passwords should never be shared.
Answer: C D F
QUESTION NO: 143

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
57
Answer: B C D
QUESTION NO: 144

Which of the following are true of interest rate swaps?
A. Risk of default is high from the floating interest rate payer if interest rates rise.
B. An interest rate swap is an external hedging technique.
C. When interest rates are falling, the risk of default by the fixed interest rate payer is low.
D. Some companies use interest rate swaps to deliberately increase their risks because they
believe that they are better at predicting future interest rates than the market.
E. An interest rate swap is an internal hedging technique.
Answer: A B D
QUESTION NO: 145

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.
Answer: B C D
QUESTION NO: 146

You have been assigned the role of lead internal auditor. Your task is to carry out the annual
assessment of the production line maintenance department.
When planning for this audit, which of the following must be completed?
A. Prepare the report.
B. Establish whether the controls are adequate or not.
C. Decide how the controls will be tested.
D. Learn all about the systems and controls in the department.
E. Carefully consider any control weaknesses that are reported.
F. Review previous audit findings for the department.
Answer: C D F
QUESTION NO: 147

Having carried out a full capital appraisal for a construction project, H Company has
approved the project with initial outflows of $6,000,000 and a net present value of
$1,200,000.
58
The implementation phase has been commenced with 25% of the costs already committed.
However when the ground was opened, an underground waterway was revealed which will
need to be diverted if the project is to proceed. Work to carry out this diversion has been
estimated at $1,300,000.
Which of the following factors will define whether the project should go ahead or not?
A. The project actually has a higher NPV than before.
B. The project now has a negative NPV.
C. Abandoning the project will have an adverse effect on shareholder confidence.
D. There will be abandonment costs to restore the site.
E. There may be other unexpected costs to be met if the project continues.
Answer: A D
QUESTION NO: 148

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.
Answer: A B D
QUESTION NO: 149

D has decided to invest in a new factory at a cost of $6,000,000. The discount rate of the
project is 22% and the PV of tax shield is $80,000.
What is the IRR?
Give your answer to two decimal places.
Answer:
21.71%
QUESTION NO: 150

Which of the following statements are true of residual risk?
A. Residual risk has to be accepted.
B. Residual risk is the risk that remains after risk mitigation has taken place.
C. If residual risk is too great then the company should not expose itself to the risk situation.
D. Residual risk may be accepted if management feels the company can bear the risk.
E. Residual risk should never be accepted.
Answer: B C D
QUESTION NO: 151

H sells machinery and also associated services, such as advice and repairs. H's industry is
going through considerable transformation.
Classify each of the examples of information available to H's management as strategic,
59
operational or of having little value.
Answer:
60
QUESTION NO: 152

Select the correct ethical principle that corresponds to each ethical dilemma described.
Answer:
QUESTION NO: 153

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
61
C. GBP/USD = 1.65
D. GBP/USD = 1.67
Answer: A
QUESTION NO: 154

TLY sell building materials such as bricks sacks of concrete and paving slabs to builders
Materials are kept in a large yard Customer orders are fulfilled by a team of 30 employees
who use forklift trucks to move sold items to the loading bay, from where they are loaded
onto lornes for dispatch to the customer The sales office prepares dispatch notes, which are
used by the yard employees to identify the items that have been ordered Which TWO of the
following controls would be cost-effective ways to prevent the theft of inventory by TLY's
staff?
A. Have a security guard check outgoing lorry loads of materials against a dispatch note
B. Conduct random searches of yard staff when they are leaving at the ends of their shifts
C. Install closed circuit television cameras covering the whole yard and with screens
constantly monitored by security staff
D. Forbid staff from parking their cars in the yard
E. Have a separate buying department, whose staff do not have access to the yard to place
orders for replacement inventory
Answer: A C
QUESTION NO: 155

V buys vegetables and fruit from three farms located in a different part of V's country and
sells them to large supermarket chains.
A recent newspaper magazine had an article on these farms showing that the farms employ
illegal immigrants whose status was used by the factory's owners to force them to work for
low wages and in unpleasant conditions. They are forced to live in small overcrowded
caravans with no running water. They are also given meals which are cold and poor quality.
These farms are located in a developed country with strong labour laws.
Classify each of the following statements as true or false.
Answer:
62
QUESTION NO: 156

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.
Answer: A B C
QUESTION NO: 157

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
63
foreign currency trade receivable declined in value without having been hedged.
Which of the following factors strengthens the case that T has been incompetent?
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
Answer: A B E
QUESTION NO: 158

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
Answer: A B C
QUESTION NO: 159

K plc is a large listed company in the retail industry. It has recently appointed T as a non-
executive director. T has never had any previous involvement with K plc but is well known to
K's Chief Executive P because T is the Managing Director of K plc's largest supplier.
K has recently expanded into Asia. Doubts about the wisdom of the move have been
expressed in the financial press with some journalists commenting that it has exposed K plc
to higher degrees of risk than previously.
The move had been approved by the Risk Committee which consists of four Non-Executive
Directors (NEDs) all of whom have significant experience in business.
K plc does not have a Nominations Committee. Nominations to the Board are usually
64
proposed by P and generally agreed by the other directors.

In relation to the above scenario which of the following comments is valid?
A. K plc is in line with best practice as it only has NEDs on its Risk Committee.
B. There is no possible conflict of interest in relation to T's position as a NED and as
Managing Director of a supplier company since, in both roles, he would clearly want K plc to
prosper.
C. The Risk Committee should have rejected the proposal to enter the Asian market merely
because it exposed K to greater risk than the other markets in which it operates.
D. The absence of a Nominations Committee exposes K plc to the risk that the Chief
Executive may have unfettered power.
Answer: D
QUESTION NO: 160

T has its computer facilities in a building adjacent to its headquarters Severe structural
problems have been discovered with this building and T has been advised that the only
option is demolition and rebuild This leaves T with strategic decisions to make about its IT
provision and it has decided to investigate the outsourcing of its services Which TWO of the
following factors should T consider as most important at this stage?
A. A supplier who can act as a partner in considering all its business needs
B. A supplier who can act as its agent in choosing the cheapest options
C. A supplier who provides a wide range of services
D. A supplier with a long history of providing outsourcing services
E. A supplier who has facilities conveniently located close to its headquarters
Answer: D E
QUESTION NO: 161

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
Answer: A
QUESTION NO: 162

JHG manufactures inexpensive cars that compete largely on price Its cars have very basic
equipment and small but economical engines JHG's Board is considering launching a luxury
brand of cars that will be far better equipped, more comfortable and have much better
performance Which THREE of the following would be relevant factors to incorporate into the
65
stress testing of this new strategy to create a luxury brand?

A. Reductions m motorway speed limits
B. The need for consumer research
C. Increased tax on vehicle emissions
D. The cost of designing new cars.
E. Potential changes in interest rates.
F. Sales of JHG's existing range of cars
Answer: C D F
QUESTION NO: 163

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.
Answer: A D
QUESTION NO: 164

Which of the following will increase the value of a call option?
A. An increase in the strike price.
B. An increase in the time to expiry.
C. A decrease in the volatility of the share.
D. A decrease in the market value of the share.
Answer: B
QUESTION NO: 165

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.
66
E. Risk should be carefully considered when evaluating possible future projects.

Answer: C E
QUESTION NO: 166

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
Answer: A D E
QUESTION NO: 167

B is a horticultural retailer with limited funds available to acquire new retail property.
B's Finance Manager has analysed two potential property investments. Investing in property
P shows an IRR of 21% while the IRR on property Q is 17%.
The Finance Manager has also advised that the NPV for property P is $750K, while the NPV
of property Q is
$850K.
The Board needs to choose between the two properties as it has insufficient funds for both.
Based purely on the Finance Manager's analysis, which of the following is true?
A. Premises P is clearly better than property Q in all respects.
B. Premises Q is clearly better than property P in all respects.
C. Board members who wish to maximise return on capital employed will want property P
while those who wish to maximise shareholder wealth will want property Q.
D. Board members who wish to maximise return on capital employed will want property Q
while those who wish to maximise shareholder wealth will want property P.
Answer: C
QUESTION NO: 168

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.
67
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.
Answer: A
Explanation
Calculation_F0
QUESTION NO: 169

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.
Answer:
68
QUESTION NO: 170

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
Answer:
4.5%
QUESTION NO: 171

SDF is a quoted company that has a large internal audit department.
Which of the following would impair the independence of SDF's internal audit?
A. The head of internal audit reports directly to SDF's chief accountant.
B. Junior internal audit staff are recruited directly from university. They spend two years with
the company before moving into other departments within SDF.
C. Internal audit staff receive a bonus whenever they discover a compliance error.
D. It is left to the individual members of the internal audit department to report any conflicts of
interest associated with a proposed investigation to which they have been assigned.
E. Internal audit staff salaries are linked to a company-wide salary scheme.
Answer: A B C
QUESTION NO: 172

Which of the following are objectives of the audit planning procedure?
A. To work out the time and resources required for the audit.
B. To perform substantive tests.
C. To work out how audit evidence will be obtained.
D. To perform analytical review to identify possible areas for investigation.
E. To set out how audit objectives will be achieved.
Answer: A C E
QUESTION NO: 173

Zia is an accountant and wishes to take out a Forward Rate Agreement (FRA) as a hedging
69
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.
Answer: B
QUESTION NO: 174

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
Answer: B
QUESTION NO: 175

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.
Answer: A
QUESTION NO: 176

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.
70
Answer:
QUESTION NO: 177

Which TWO of the following scenarios should be considered in strategic scenario planning by
a publishing company that specialises in academic textbooks?
A. There could be a change in the technology used by consumers, such as smaller mobile
phones with smaller screens
B. Budget changes could have an impact on the funding available to college and university
libraries
C. The terms offered by media companies for film rights for books could change
D. The quality of output from printing presses might improve
E. Environmental concerns could lead to a decrease in the availability of trees to make paper
Answer: B C
QUESTION NO: 178

AB is a manufacturing company which relies heavily on its computerised systems for
customer management Which of the following is the most important factor which will enable
AB to continue to operate after an incident which destroys its central computer*?
A. A duplicate copy of its computer hardware at a remote location
B. The ability to replicate its data and applications elsewhere
C. A good insurance policy.
D. Paper hardcopies of all original documents
Answer: A
QUESTION NO: 179

W plc is a large international supermarket chain. It has many thousands of suppliers and
71
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.
Answer: A B C
QUESTION NO: 180

WTW is a global company which produces high-tech equipment such as smart televisions
and mobile phones The CFO has just resigned, having been offered a post at a competitor
The CFO was well regarded and WTWs share price has fallen in response to the
announcement At a board meeting the production director commented that the share price
fall is the fault of the nomination committee Which THREE of the following statements are
correct?
A. The nomination committee should prepare a description of the role and capabilities
required for the CFO's replacement
B. If the nomination committee had been working effectively the CFO would not have
resigned
C. When planning the CFO's replacement the nominations committee should consider the
diversity of the board
D. The nomination committee should have considered succession planning for directors
before the CFO resigned
E. Most of the members of the nomination committee should be executive directors as they
are responsible for ensuring the share price recovers quickly.
Answer: A C D
QUESTION NO: 181

The safety guard on a piece of equipment was broken. The factory manager suspended an
operator who refused to operate the equipment until it was repaired. The factory manager
paid another operator a bonus for operating the damaged equipment until the safety guard
could be repaired.
What does this incident say about the control environment within that factory?
A. Management is not particularly concerned with managing risks.
B. Employees will perceive that management does not care about health and safety risks.
C. This factory's safety record is likely to be poor.
D. Employees are motivated to maintain productivity.
E. Management has a proportionate and considered attitude towards risk.
72
Answer: A B C
QUESTION NO: 182

HJK is a retailer, with more than 40 shops around the country. The directors suspect that a
serious fraud has occurred at one of the branches and a team of internal auditors has been
sent to investigate.
An analytical review investigation shows that sales revenue is in line with budget, but
overtime payments to shop staff exceed budget by 20%.
How should the internal audit team proceed?
A. Conduct additional detailed testing on overtime payments.
B. Conduct additional detailed testing of all figures.
C. Increase the evaluation of inherent risk.
D. Increase the evaluation of control risk.
Answer: A
QUESTION NO: 183

YY is a company which generates electricity from alternative energy sources It has just
begun constructing a wind farm near a well-known beauty spot The protect has been
controversial as campaigners say it will be noisy and unsightly.
The campaigners took legal action but lost the case Some of them have started a campaign
of direct action against YY and are physically blocking roads leading to the site and
attempting to intimidate YY's staff YY has hired a security company to help it to protect its
staff Which of the following statements are view in relation to the ethics of this scenario''
Select ALL that apply.
A. YY is within its rights to hire the security firm because it has duty of care to its employees
B. The security firm must take care not to use more force against the protestors than is
absolutely necessary.
C. YY no longer has any duty of care to the protestors since their actions are illegal because
they lost their court case
D. The generation of electricity from clean renewable and sustainable sources is too
important for the protestors' concerns to be considered
E. Since the protestors have already lost their court case they would no longer be ethically
justified in engaging in political lobbying to try to get the government to change the law in this
area
Answer: A B D
QUESTION NO: 184

University B has several departments. Each department at times obtains funding from
different sources such as government grants and industry sponsorships. The central
management of the university has decided to develop a module within its current Information
System to track these funds centrally.
The central management of the University has decided to utilise in-house expertise in order
to build this module.
Which THREE of the following represent advantages of developing this module and doing so
73
using in-house expertise?

A. Time will be saved because there will be no need to explain the basic structure and
operations of the University to an outside contractor.
B. In-house experts will be more easily able to integrate the module into the existing system.
C. There is a better chance that in-house experts will spot long-standing inefficiencies or
anomalies in the existing system.
D. The system may limit the freedom of heads of department to act with autonomy.
E. The system will make it easier for central management in the University to access the
performance of individuals, departments and groups.
Answer: A B E
QUESTION NO: 185

Which of the following statements are true of economic risk?
A. Economic risk is easy to measure
B. Economic risk may be caused by international trade
C. Economic risk is something which cannot be avoided
D. Economic risk is influenced by many factors
Answer: B D
QUESTION NO: 186

Q is a company which generates electricity from alternative energy sources. It has just begun
constructing a wind farm near a well-known beauty spot. The project has been controversial
as campaigners say it will be noisy and unsightly.
The campaigners took legal action but lost the case. Some of them have started a campaign
of direct action against Q and are physically blocking roads leading to the site and attempting
to intimidate Q's staff.
Q has hired a security company to help it to protect its staff.
In relation to the ethics of this scenario, which of the following statements are valid?
A. Q is within its rights to hire the security firm because it has duty of care to its employees.
B. Q no longer has any duty of care to the protestors since their actions are illegal because
they lost their court case.
C. The security firm must take care not to use more force against the protestors than is
absolutely necessary.
D. Since the protestors have already lost their court case they would no longer be ethically
justified in engaging in political lobbying to try to get the government to change the law in this
area.
E. The generation of electricity from clean, renewable and sustainable sources is too
important for the protestors' concerns to be considered.
Answer: A C
QUESTION NO: 187

Which of the following are true of an effective risk management culture?
A. Staff should be penalised for being associated with negative events.
B. All risk should be eliminated.
74
C. Responsibility for risk management should be devolved to a risk manager.

D. All staff should be aware of risks affecting the entity.
E. Risk management should be regarded as part of the overall business strategy.
F. The directors should take an active interest in risk management.
Answer: D E F
QUESTION NO: 188

M is a listed company. It is hoping to invest in a risky new venture. M has a substantial
amount of cash to invest in the venture. M would have found it difficult to raise new finance
as it has a high level of gearing.
Which of the following statements about stakeholders' conflicting interests are true?
A. M's shareholders would only be exposed to the systematic risk from the investment in the
new venture.
B. M's credit rating is likely to fall as a result of this new venture.
C. The directors would only be exposed to the systematic risk from the investment in the new
venture.
D. M's diversification will mean less risk for the shareholders.
Answer: A B
QUESTION NO: 189

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?
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. Cshall 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
Answer: B D E
QUESTION NO: 190

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.
Answer: A
75
QUESTION NO: 191

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
Answer: A C E
QUESTION NO: 192

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.
Answer:
15%
QUESTION NO: 193

When a new computer system is being implemented there are several possible methods for
managing the changeover from the old system to the new system.
Which THREE of the following are true?
A. Phased changeover is the safest and slowest method of changeover.
B. Phased changeover moves individual portions of the business to the new system one at a
time.
C. Pilot changeover moves the simplest part of the business to the new system first.
D. Parallel running involves keeping the old system running, normally until certain data
retention criteria are met or confidence is gained, while the new system deals with the new
workload. Data input is usually carried out on both systems.
E. Direct changeover, or Big Bang is only used when the systems are significantly different
such that comparing the outputs of the two systems is largely irrelevant.
F. All methods of changeover carry high risk and it is the preparation, consideration of data
compatibility and data cleansing before the changeover which has the biggest impact on the
smoothness of the transition.
Answer: B D F
QUESTION NO: 194

Why do businesses take risks?
Select the TWO correct answers.
A. Risk taking can give the impression that senior management roles are very dynamic.
B. Risk taking can assist businesses to gain an advantage on their competitors.
C. Risk taking allows businesses to save time by not having to find out all the facts before
they embark on new projects.
D. Risk taking provides businesses with opportunities to make better returns.
76
E. Risk taking allows for multiple random outcomes, some of which may be worth chasing.
Answer: B D
QUESTION NO: 195

An oil company has entered into a joint venture with a competing oil company to develop a
new oil field. The joint venture arrangement is intended to mitigate the risks associated with
developing the oil field.
The following disclosure appears in the oil company's risk report:
"Many of our large projects and operations are conducted through joint ventures. These
arrangements involve complex risk allocation and indemnification arrangements and we have
less control over these activities than we would have if we had full ownership and control.
Our partners may have economic or business interests that are opposed to ours, and may
exercise the right to block key decisions or actions. We believe the joint arrangement is in our
best interest." Which of the following statements are correct?
A. The risk report means that the shareholders know exactly how bad the risk is.
B. The risk report says nothing useful about the risk.
C. Now the shareholders know the directors are aware of the risk.
D. If the risk report had not reported the risk the shareholders might not have been aware of
the risk.
E. The shareholders now have more useful information.
Answer: C D E
QUESTION NO: 196

Which of the following is NOT a financial risk.
A. Selling goods on credit terms.
B. Taking out variable rate loans to finance short term investments.
C. Sourcing raw materials overseas to manufacture goods.
D. Global warming.
Answer: D
QUESTION NO: 197

Move the category of risk to the box beside the risk description it best matches.
Answer:
77
QUESTION NO: 198

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.
Answer: A D F
QUESTION NO: 199

The Board of Directors of VCX, a state-owned electricity company, includes four executive
directors the Chief Executive Officer, the Finance Director the Operation Director and the
Technical Director All of the shares in the company vest in the Office of the Minister for
Energy, who is entitled to appoint two non-executive directors to the Board It has been
alleged that the Minister appoints political "insiders" who have no particular knowledge of. or
interest in. the electricity industry There are three further non-executive directors
* L, who spent seven years as Chief Executive of VCX, but retired from that role two years
ago,
* M, who spent several years on the Board of a state electricity company in a different
country to VCX but who resigned from it before accepting the position with VCX: and
* N, who is a qualified and experienced professional accountant
In relation to best practice in respect of Corporate Governance, which of the following
statements are valid?
A. None of the executive directors should be allowed to sit on the Remuneration Committee
B. M is unsuitable to be part of the Board because his previous involvement with a similar
company in another country is a conflict of interest.
C. L can now be considered to be an independent non-executive director
D. M and N are both suitable appointees to the Audit Committee
E. The Finance Director should be part of the Audit Committee because of her expertise
F. Non-executive directors should be responsible for monitoring the performance of executive
management especially with regard to company strategy and objectives
Answer: A D F
78
QUESTION NO: 200

Division A of X plc produced the following results in the last financial year.
Net profit $200,000 Gross capital employed $1,000,000
For evaluation purposes all divisional assets are valued at original cost.
The division is considering a project that has a positive NPV, will increase annual net profit by
$15,000, but will require average inventory levels to increase by $50,000 and non-current
assets to increase by $50,000.
X plc imposes a 16% capital charge on its divisions. Given these circumstances, will the
evaluation criteria of return on investment (ROI) and residual income (RI) motivate division A
managers to accept the project?
A. ROI Yes RI Yes
B. ROI Yes RI No
C. ROI No RI Yes
D. ROI No RI No
Answer: D
QUESTION NO: 201

Which of the following best describes the relevance of value at risk (VaR) as a decision tool?
A. VaR quantifies past volatility
B. VaR quantifies future volatility
C. VaR quantifies the maximum loss that could ever be incurred
D. VaR can only measure downside risk
Answer: A
QUESTION NO: 202

B is a company with a strong risk appetite. Which of the following are benefits of using the
certainty equivalent method of capital investment appraisal in B's case?
A. A high level of subjective judgment is required from the decision maker.
B. It avoids the need for the investor to estimate an appropriate discount rate which reflects
the risk of the project cash flows.
C. By building a risk adjustment into the discount rate, it takes greater account of risk in later
time periods.
D. More risky projects are more likely to be accepted using this method of appraisal.
E. The method produces the most appropriate results in cases where project cash flows do
not increase in risk over time.
Answer: B C
QUESTION NO: 203

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%
79
D. 16.50%
Answer: B
QUESTION NO: 204

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.
Answer: C E
QUESTION NO: 205

A publicly funded hospital has put various features in place in an attempt to improve strategic
control and create an improved control environment.
Which TWO of the following features are most likely to meet this objective?
A. An Audit Committee consisting of five independent persons with expertise in finance,
human resources, and medicine.
B. A strict policy of capping the maximum salary payable to any employee at 110% of the
average earned by that category of employee in the country in which the hospital is located.
C. The setting up of a Risk Management Committee to examine the strategic risks applicable
to the entity and to formally report on a quarterly basis.
D. Ensuring that all medical staff are aware that their first priority should be to discharge
patients as quickly as possible at all times so as to minimise wasting hospital resources.
E. Ensuring that the Head of Internal Audit examines and authorises all expense claims by
hospital staff.
Answer: A C
QUESTION NO: 206

COM is a well established company in the construction industry The company was founded
80
by the Mac family

30 years ago and several family members still serve on the Board The company obtained a
listing five years ago The Board has an appropriate balance between executive and non-
executive members It also has audit remuneration and nomination committees The average
age of board members is 68 COM is profitable but profit margins have been falling steadily
and this year's revenues are lower than it was achieved last year The Board recognis thai it
does not have a long term strategy in place and has been losing business to newer, more
aggressive competitors Which THREE of the following statements are correct?
A. The remuneration committee should consider incentives such as share options to
encourage the Board to focus on COM's long term strategy
B. The nomination committee should have had a succession plan in place for directors.
C. The nomination committee should be operating for the benefit of the directors.
D. The audit committee should have alerted the Board to the impact of falling profit margins
E. The non-executive directors should have challenged the lack of long term strategic
planning
Answer: A B E
QUESTION NO: 207

A consultancy firm has many overseas clients The firm's staff are responsible for booking
travel and accommodation through an independent travel agent who invoices the firm. There
are strict rules governing bookings Staff at all levels must book economy class airfares
unless the scheduled flight time is greater than eight hours, in which case they can book a
business class seat Hotel accommodation should cost less than $300 per night One of the
firm's directors is visiting the consultancy team responsible for a large overseas project The
director flew business class, even though the flight took only five hours The director is
booked into an executive suite at an expensive hotel at a cost of $900 per night Which TWO
of the following statements concerning the director's behavior are correct?
A. Directors are not required to adhere to company policies in the same manner as more
junior staff
B. The travel agent's invoice should be queried by the consultancy's administrative staff.
C. Staff may be encouraged to book more expensive flights and accommodation in the future
D. In future, all staff should be permitted to fly business class and use more luxunous hotels
E. Only the staff engaged on this project will be aware of the director's behavior
Answer: B
QUESTION NO: 208

Some sensitive computer systems are particularly attractive to cyber criminals. Passwords
may be used as one element of restricting access to legitimate users, but the password
systems should be designed with great care.
Which of the following methods would enhance a password access system?
A. The use of a two level system, a primary password plus questions correctly answered
from set of queries, logged at system set up time.
B. The use of drop down menus, using screen coordinates rather than transmitting
keystrokes over a communication link.
81
C. The logging and reporting of failed password attempts.

D. The password should be typed quickly.
E. The use of family members names, known only to the individual and not known by
colleagues.
F. The use of a sequence of passwords, using upper and lower case with numbers, easy to
remember but regularly changed for example; November 11, December12, January01.
Answer: A B C
QUESTION NO: 209

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
Answer: B D
QUESTION NO: 210

Company directors who exercise executive share options generally resell the shares
immediately, rather than holding them Which of the following best explains this behavior?
A. The directors receive a risk-free gain
B. Shareholders become nervous when the directors hold shares
C. The shares are out of the money at the exercise date
D. It is a conflict of interest for directors to be shareholders.
Answer: A
QUESTION NO: 211

A UK based company is considering an investment of GB£1,000,000 in a project in the USA.
It is anticipated that the following cash flows will arise from this project.
The cash flows will be either US$400,000 with a probability of 40% or US$700,000 with a
probability of 60% for each of the next three years; remitted to the UK at the end of each
year.
Currently GB£1.00 is worth US$1.30.
82
The expected inflation rates in the two countries over the next four years are 2% in the UK
and 4% in the US.
Applying the Purchasing Power Parity Theory, which of the following represents the expected
net present value of the project in GP£ (to the nearest whole pound)?
A. GB£287,639
B. GB£391,640
C. GB£(111,973)
D. GB£554,047
Answer: A
QUESTION NO: 212

CDE an online ticket sales agent, has unwittingly become an accomplice in cyber crime and
is suffering attacks on its own business as a result CDE's website was poorly designed and
cyber-attackers have managed to inject the site with malware, so that it collects all of CDE's
customer log-in information and enables the cyber-attackers to retrieve it The cyber-attackers
subsequently use this information to set up Botnet agents in the customers' devices which
are then used in a Distributed Denial of Service (DDoS) attack whenever very popular tickets
are being placed on sale such as international football matches The cyber-attackers secure
access to a single portal on the site and buy multiple tickets for subsequent sale on the black
market while the DDoS causes all other portals to be overloaded preventing real fans
acquiring the tickets at face value Which TWO of the following apply in this scenario?
A. CDE customers will turn to other ticket sources for their tickets
B. CDE is likely to face significant fines for the breach.
C. CDE is likely to lose the ticket franchise for international football events
D. CDE will need to implement a new firewall to prevent this type of attack.
E. CDE will remain just as profitable selling to the black market as to real fans
Answer: A D
QUESTION NO: 213

Laura is an accounts clerk. She is supposed to sign each invoice as evidence that she has
conducted checks against supporting documents. Sometimes Laura signs invoices without
making these checks.
Terry is a member of the internal audit team. Terry has been told to conduct compliance tests
on whether Laura is checking the invoices properly.
Which of the following would give Terry a false sense of assurance that Laura's checks have
been operating?
A. Terry examined a sample of invoices to make sure that they had been signed by Laura. All
had been signed.
B. Terry worked at a spare desk in the accounts department and quietly watched Laura
without telling her.
She checked every invoice carefully while Terry was present.
C. Terry selected a sample of purchase invoices and compared each to the supporting
documents that Laura is supposed to review. Every one of Terry's invoices was supported by
the related documents.
83
D. Terry asked Laura a series of open-ended questions about the operation of the purchases
system. She did not mention anything about detailed checks of invoices against documents.
E. Terry reviewed a sample of invoices for purchases of plant and equipment and found that
Laura had not signed them. Laura explained that she believed that those were authorised by
someone else, although the accounts manual indicates that it was her responsibility.
Answer: A B C
QUESTION NO: 214

K Ltd is an on-line travel agency specialising in budget package holidays to a small number
of popular locations. The holidays that it sells are made up of a "package" of flights, hotel
accommodation and food. K Ltd's Finance Director is concerned that the company's scope of
operation is too narrow and wishes to diversify.
Identify TWO actions that K Ltd should take immediately.
A. Set up a number of activity holidays; adventure, sports and trekking for example.
B. Bulk book cruise accommodation and create a special package deal for retired couples.
C. Expand the number of locations it currently serves.
D. Re-image the locations it currently serves to make them more exotic and family friendly.
E. Review the customer base looking at feedback, repeat sales and single visit statistics.
F. Engage market researchers to look at future trends in holiday requirements.
Answer: E F
QUESTION NO: 215

In relation to the use of the adjusted present value (APV) technique, which of the following
statements are correct?
A. To apply APV, the proportions of debt and equity in the capital structure must be known.
B. To apply APV the actual amounts of debt and equity in the capital structure must be
known.
C. The interest tax shield on the project's debt must be known, or at least estimated.
D. The weighted average cost of capital - net present value technique and the APV technique
will, if applied correctly, give the same answer.
Answer: C D
QUESTION NO: 216

The Head of IT Security has been asked to conduct a detailed forensic analysis of a
suspected data breach that ted to customer credit card details being intercepted.
Which TWO of the following would be suitable objectives for such a forensic analysis?
A. Recovering the stolen credit card details before they can be abused by criminals
B. Developing an understanding of the vulnerabilities that led to the breach
C. Identifying customers whose details have been stolen
D. The collection of evidence that can be used to convict the perpetrators of the breach.
E. Preventing the credit card companies from blaming the entity for fraudulent charges
Answer: B C
QUESTION NO: 217
84
K has several subsidiary companies. The directors of K's subsidiaries are paid an annual
bonus 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.
Answer: C
QUESTION NO: 218

Will owns $400,000 of shares in Company X.
Company X has a daily volatility of 1% of its share price.
Calculate the 28 day value at risk that shows the most Will can expect to lose during a 28 day
period.
(Will wishes to be 90% certain that the actual loss in any month will be less than your
predicted figure).
Give your answer to the nearest $000.
Answer:
$27
QUESTION NO: 219

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%
Answer: A
QUESTION NO: 220

SC is a professional football club which is currently listed on a recognised stock exchange.
There is a proposal that it builds a new stadium at a location a considerable distance from its
current stadium.
There is strong support within the club for the move as the current ground is now over 40
years old and has not been extensively modernised in that time.
However, there is a lot of opposition to the move in the area where it is proposed to locate
the new stadium. Objectors claim that the new stadium will increase traffic and pollution in
the area and will adversely affect the value of their properties.
Which of the following statements about the responsibility of the board of SC is correct?
A. SC is now a listed company and so the board should prioritise the interests of
shareholders to the exclusion of other stakeholders.
85
B. A football club needs to be part of the community in which it exists and so the board
should consider the other stakeholders.
C. The board should conclude that objectors to the new stadium have a legal course of action
open to them and if they do not take legal action they should ignore them.
D. If the board of directors is seen as acknowledging its responsibility to stakeholders other
than shareholders this will enhance the reputation of the club and it will be more likely that a
compromise can be reached with objectors.
E. The board should share information about the new development with the local community
only to the extent that it is legally obliged to do so.
Answer: B D
QUESTION NO: 221

A US company has to pay £500,000 for a new machine.
You have the following information on currencies.
EUR 1 = £1.2300
EUR 1 = USD 1.6200
What is the cost of the machine in USD?
Give your answer to the nearest $.
Answer:
$658501, $658537
QUESTION NO: 222

Which THREE of the following are true with regard to managing the changeover from an old
to a new computer system?
A. Pilot changeover moves the simplest part of the business to the new system first
B. Parallel running involves keeping the old system running normally until certain data
retention criteria are met or confidence is gained, while the new system deals with the new
workload Data input is usually earned out on both systems
C. All methods of changeover carry high risk and it is the preparation consideration of data
compatibility and data cleansing before the changeover which has the biggest impact on the
smoothness of the transition
D. Phased changeover moves individual portions of the business to the new system one at a
time
E. Direct changeover, or big bang, is only used when the systems are significantly different
such that comparing the outputs of the two systems is largely irrelevant
F. Phased changeover is the safest and slowest method of changeover
Answer: D E F
QUESTION NO: 223

YUI owns 18 factories, which are spread around the country. Each factory employs 500-700
production staff and has its own administrative and accounts departments.
It has recently been discovered that the manager in charge of YUI's Hightown factory has
been overstating his personal expenses claims for the past five years. The total amount
stolen in this manner has been estimated at
86
$10,000.
Why would it have been relatively difficult to have prevented this fraud?
A. Senior members of management can often override controls.
B. It is impossible for anybody to check expenses claims submitted by a senior manager.
C. Managers are generally highly intelligent and are generally capable of designing ways to
defeat control systems.
D. Internal controls cannot address fraud, only error.
Answer: A
87

Premium Version With Answer

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Premium Version With Answer

Uploaded by

Copyright:

Available Formats

IT Certification Guaranteed, The Easy Way!

Title : Risk Management

of £1,210 at a discounted rate of 9%.

A. Policy 2 is the more risky.

A. Sales staff will be happier in their jobs.

A. It provides unlimited free use for the enterprise

Which of the following is an ethical dilemma?

been refused access.

QUESTION NO: 100

new computer systems.

QUESTION NO: 101

QUESTION NO: 102

QUESTION NO: 103

QUESTION NO: 104

QUESTION NO: 105

QUESTION NO: 106

QUESTION NO: 107

QUESTION NO: 108

QUESTION NO: 109

QUESTION NO: 110

QUESTION NO: 111

QUESTION NO: 112

QUESTION NO: 113

QUESTION NO: 114

QUESTION NO: 115

QUESTION NO: 116

QUESTION NO: 117

What should you do?

QUESTION NO: 118

QUESTION NO: 119

QUESTION NO: 120

QUESTION NO: 121

QUESTION NO: 122

QUESTION NO: 123

allowed, or transfers between accounts.

QUESTION NO: 124

QUESTION NO: 125

QUESTION NO: 126

QUESTION NO: 127

QUESTION NO: 128

QUESTION NO: 129

QUESTION NO: 130

QUESTION NO: 131

QUESTION NO: 132

QUESTION NO: 133

QUESTION NO: 134

QUESTION NO: 135

QUESTION NO: 136

QUESTION NO: 137

QUESTION NO: 138

QUESTION NO: 139

QUESTION NO: 140

draft financial statements.

QUESTION NO: 141

QUESTION NO: 142

QUESTION NO: 143

QUESTION NO: 144

QUESTION NO: 145

QUESTION NO: 146

QUESTION NO: 147

QUESTION NO: 148

QUESTION NO: 149

QUESTION NO: 150