ICAN/201/Q/B3 Examination No... THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA SKILLS LEVEL EXAMINATION — MARCH/JULY 2020 CORPORATE STRATEGIC MANAGEMENT & ETHICS EXAMINATION INSTRUCTIONS PLEASE READ THESE INSTRUCTIONS BEFORE THE COMMENCEMENT OF THE PAPER Check your pockets, purse, mathematical set, etc. to ensure that you do not have prohibited items such as telephone handset, electronic storage device, programmable devices or any form of written material on you in the examination hall. You will be stopped from continuing with the examination and liable to further disciplinary actions including cancellation of examination result if caught. Write your EXAMINATION NUMBER in the space provided above. Do NOT write anything on your question paper EXCEPT your examination number. Do NOT write anything on your docket. Read all instructions in each section of the question paper carefully before answering the questions. Do NOT answer more than the number of questions required in each section, otherwise, you will be penalised. All solutions should be written in BLUE or BLACK INK. Any solution written in PENCIL or RED INK will not be marked. A formula sheet and discount tables are provided with this examination paper. TUESDAY, SEPTEMBER 15, 2020 DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SOTHE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA SKILLS LEVEL EXAMINATION - MARCH/JULY 2020 CORPORATE STRATEGIC MANAGEMENT & ETHICS Time Allowed: 31/, hours (including 15 minutes reading time) INSTRUCTION: YOU ARE REQUIRED TO ANSWER FOUR OUT OF SIX QUESTIONS IN THIS PAPER ‘SECTION A: COMPULSORY QUESTION (40 MARKS) QUESTION 1 Air Spirit Limited is a leading aviation company in Nigeria involved in the passenger and cargo airline business. The company was established in 1980 and since inception, it has maintained leadership in the passenger airline business in Nigeria. The company has been able to leverage on experience leading to efficiency in its operations which competitors have not been able to replicate. Hence, it has assumed cost leadership position in the industry. The firm currently pursues a low price strategy and as such offers the lowest fare for all categories of flights (economy, business and first class) in the market including its cargo services. Service quality of Air Spirit is adjudged by the flying public as second to none in terms of quality, effectiveness and safety with customer benefits rated above that of its rivals. As a growth strategy, the company is planning to expand its product offerings to include chartered flights. Target market includes politicians, businessmen and high net worth individuals. It is estimated that the chartered flights market is growing at 10% annually. Also, the chartered flight market is currently serviced by only one company: Royal Airlines Limited which covers only the Lagos-Abuja route. Set up cost is high, thereby providing a barrier for new entrants. The company hopes to leverage on existing competencies in the passenger and cargo market to build the best chartered flight company in the country within the next three years, offering excellent Services in terms of benefits that would be difficult to replicate by competitors. It has built a strong relationship with aircraft suppliers andmaintenance contractors. This will facilitate easy access to needed inputs. It hopes to commence operations with 1 ICAN/201/0/B3several routes, most of which are not currentlyservicedby competitors. The company believes that the capabilities obtained from the passenger and airline business will enable it to offer the lowest fare in the chartered flight industry. Required: a. From the scenario above, use the Bowman's Strategic Clock to analyse the effectiveness of the current strategy of Air Spirits Limited in the passenger airline business. (22 Marks) Using the Porters 5 force model, advise the management of Air Spirit Limited on the level of competition in the chartered flight market. (18 Marks) (Total 40 Marks) SECTION B: YOU ARE REQUIRED TO ANSWER ANY THREE OUT OF FIVE QUESTIONS IN THIS SECTION (60 MARKS) QUESTION 2 a. Explain the definition of strategy provided by Chandler(1962) and extract its essential elements in a way that will help a would-be entrepreneur understand what a business strategy is all about. (10 Marks) b. An adequate understanding of basic concepts and theories of ethics is a requisite for the evolution of the skills needed to address ethical issues that could arise in the course of carrying out your duty as a professional accountant. Distinguish between ethical absolutism and ethical relativism. Identify THREE types of ethical relativism. (10 Marks) (Total 20 Marks) 2 ICAN/201/0/B3QUESTION 3 At a recently held board meeting of your company, there was a heated argument about the need for the company to have a Corporate Social Responsibility (CSR) policy. While some viewed CSR as a complete waste of resources, others view it as an absolute necessity. Required: a. Using the Grey, Own and Adams 7-point classification, analyse the possible ethical stance taken by members of the board (12 Marks) b. Using the Johnson and Sholes cultural web, explain the elements that shape the understanding of corporate ethics by board members. (8 Marks) (Total 20 Marks) QUESTION 4 a. Discuss the responsibilities of the Chairman as provided by the Nigerian Code of Corporate Governance. (10 Marks) Bi What is Board Diversity and explain SIX categories of Board Diversity (5 Marks) fi. Evaluate the benefits of Board Diversity? (5 Marks) (Total 20 Marks) QUESTION 5. Oasis Bakeries is a producer of all kinds of bread, servicing only the Lagos market. In response to anticipated increase in the demand for bread, the company decided to increase its installed capacity from 1000 loaves to 5,000 loaves per day, having secured regulatory approval from the Federal Authority. However, the market for bread in Lagos is largely dominated by bigger producers and there is some stability in the price of bread across all brands in the market. Thus, the tisk of a price war is low. However, owing to the short shelf life of bread, most of it are sold to retailers on credit. But due to a combination of reasons, credit default rate is 3 ICAN/201/0/B3increasing. The company by experience has also discovered that ovens, mixers and other equipment for the production of bread rarely break-down within the first 5 years of usage. However, procurement of raw materials such as flour and butter has become more challenging due to the activities of bigger bakeries and recent increase in import duty on all processed food. Required: a. Advise Oasis bakeries on the level of exposure to any FiVEcategories oftisk inherent in its growth strategy. (10 Marks) b. Analyse the impacts of risks on anyFIVE of the stakeholders groups of Oasis Bakeries (10 Marks) (Total 20 Marks) QUESTION 6 There are several models (out of which FOUR are more essential) for a professional accountant - client relationship which differs in the extent to which the client or the professional has most authority and responsibility. Required: Explain the FOUR essential Models for a Professional Accountants — Client Relationship with examples. {Total 20 Marks) 4 ICAN/201/0/B3