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CIMA P3 - Risk Management

Page: 5 / 11
Total 339 questions

The internal audit department has just completed an investigation into the HR department's procedures relating to new staff appointments The head of HR is unhappy with the draft report prepared by the lead internal auditor The report lists several cases in which appointments were made despite the fact that one or more of the entity's formal procedures were not followed

The head of HR has complained that the internal auditor's comments do not allow for the fact that the HR department's staff members are often very busy and do not always have time to conduct every check.

The internal auditor's comments also reflect a failure to complete documents None of the omissions have led to the appointment of an unsuitable member of staff

Which TWO of the following statements reflect an appropriate response by the board of directors to this report?

A.

Ignoring a compliance error altogether may undermine the control environment

B.

The procedures should be removed if the HR department staff believe that they are unnecessary

C.

The board should be seen to support the internal audit

D.

The errors are immaterial because they did not lead to an inappropriate appointment

E.

The members of staff responsible for these omissions should be subjected to disciplinary action

M plc is an IT company that bids for large contracts to sell computer systems and also to service existing systems. M plc's senior management has always set budgets which are hard to achieve and have made no allowances for the recession.

The economy has improved and M plc's senior managers have made the budget even more optimistic. The budgeted sales target has been increased by 40%.

In the past, sales staff have not tried to achieve the budget sales because it was generally believed that the targets were impossible to reach.

M plc has recently appointed a new Sales Director who has decided that sales staff will be dismissed if they fail to meet sales targets for three successive months. He is also looking for higher sales margins than were achieved before.

What are the likely consequences of the new Sales Director's policy?

A.

Sales staff will be happier in their jobs.

B.

Sales staff will tender for riskier contracts.

C.

Sales staff will encroach on other sales staff territories to get more work.

D.

Sales staff will look for new jobs.

E.

Sales staff will feel more settled and secure in their jobs.

H has a floating rate loan that it wishes to replace with a fixed rate. The cost of the existing loan is LIBOR + 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%

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.

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.

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.

L's risk register currently states the likelihood of risks m terms of their estimated percentage probabilities. The risk committee cs considering classifying risks using a three point scale high, medium and low.

Which TWO of the following are true?

A.

Quantifying probabilities as percentages gives greater scope for describing risks

B.

Using percentages will be more scientific

C.

Everyone will agree the meaning of high, medium and low

D.

High, medium, low will eliminate subjectivity

E.

High, medium and low will be easier to use

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.

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

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.