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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 $.
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?
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?
The Dean of Information Technology at Capital City University wishes to develop a degree in 'ethical hacking" Students will graduate from this course with the skills needed to develop malware, so that they have the ability to reverse engineer malicious software The Dean believes that there will be strong demand for such graduates from employers in IT security and related fields.
Which TWO of the following statements are correct?
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?
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?
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?
Internal audit should be both efficient and effective.
Which THREE of the following measure the efficiency of internal audit"?
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?
P sells mobile phones and accessories The directors of P are concerned that there is a high risk of fraud being carried out by employees in the retail stores. There is a high turnover of employees in the shops as the sales targets are difficult to meet
Which TWO of the following controls would reduce this risk?
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?
The Committee of Sponsoring Organisations (COSO) outlined six key principles of Enterprise Risk Management (ERM).
Which of the following are COSO key principles?
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?
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?
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?
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?
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?
Which THREE of the following are key elements of cyber security risk governance?
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?
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?
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?
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 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?
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.
Which of the following statements are correct?
Under the COSO Enterprise Risk Management Framework, who is responsible for risk management?
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.
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?
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?
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.
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.
B is a quoted construction company. Its Board consists of qualified and experienced engineers Which TWO of the following statements are correct?
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?
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?
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?
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?
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.
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?
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?
Risk management involves all parties in an organisation.
Which of the following describe the Board's responsibilities for risk management?
Which of the following scenarios might be relevant stress tests for a potential lender to conduct? Which TWO of the following answers are correct?
Company X has been advised by its internal audit team that it should have a fraud response policy
A is a new member in the internal audit team and he does not see why this would help to prevent fraud and has asked for an explanation Which TWO of the following would be included in this explanation? It would act as a deterrent and help prevent staff from committing fraud
There are many method for appraising capital projects.
Select ALL correct statements.
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 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?
TESTED 02 May 2024
