CIMA P3 - Risk Management

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?

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?

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.

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?

The shares of a company have a beta factor of 1.15. Therefore, which of the following must be true?

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?

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?

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*?

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?