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CIMA P3 - Risk Management

Page: 10 / 11
Total 339 questions

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.

Match the descriptions shown in the boxes below with the method of quantifying risk exposure it best describes.

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

You are the Management Accountant for a company which supplies baked food to a string of retail outlets; biscuits, cakes, savoury snacks etc.

You discover that a trainee employee, who is responsible for cleaning out the delivery vans has been taking damaged goods and packets which have reached their sales expiry date and has been selling them to friends. These products would otherwise have been discarded as waste.

The trainee in question is the nephew of one of the senior managers.

What is the correct course of action?

A.

Have a quiet word with the trainee and ask him to stop.

B.

Have a quiet word with the senior manager, the trainee's relative and ask them to deal with it.

C.

Document the facts and escalate to the trainee's manager.

D.

Do nothing, the product was designated as waste anyway.

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.

HJK is a publishing company that employs several hundred staff A member of the company's IT Security Department contacted 30 members of HJK's staff selected at random, and told each one that his or her computer appeared to be infected with a virus The staff members were asked to provide their login details and corporate passwords so that IT Security could remove the virus remotely A total of six members of staff provided this information.

Which TWO of the following statements are correct?

A.

HJK's entire staff should be informed of the investigation and of the disappointing fact that six members of staff handed over their logins and passwords

B.

The investigation should be repeated in the future on a different sample of staff, using other reasons for asking for logins and passwords

C.

HJK's response should be limited to briefing the six staff members on their error and ensuring that they change their passwords.

D.

It was acceptable for the staff to surrender their details because the request had actually been made by members of HJK's IT Security Department.

E.

It was unethical for HJK's IT Security Department to contact staff in this manner, lying about the suspected presence of a virus in order to provoke a response.

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.

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.

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.

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.