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CIMA P3 - Risk Management exam in just 24HOURS!


CIMA P3 - RiskManagement

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Question No1:

W is a construction company which undertakes large projects for governments and other clients worldwide. Following extensive tendering processes, contracts are issued for successful tenders, and projects typically take three to five years to complete. Contracts are normally fixed-price and many have considerable penalty clauses. Which of the following would be appropriate policies and controls for W to implement?

Unsuccessful tenders should be analysed to establish the cause of them failing to be awarded the work and help to avoid futurefailures.

Ensuring a consistent separation of duties between those involved in the preparation of tenders and those involved in the planning ofprojects.

Ensuring that the minimum legal wage is paid to all workers on the constructionsites.

In order to ensure the maximum chance of winning the contract, tenders always commit W to completing the work at the lowest possible price and in the shortest possibletime.

Contract terms should be worded precisely so that additional work is not deemed to form part of thecontract.

The project steering committee and project board should receive regular projectstatus


Answer: A, E, F Question No2:

You are the Management Accountant for P, a food manufacturing company with an annual sales revenue of $5 million. You discover that the Production Manager's records are inconsistent. Raw materials purchased do not agree to the total recorded for transfers to production plus wastage. There is an average shortfall of 2% of purchases. You investigated and discovered that there are often mistakes made during manufacturing that results in food that is safe to eat, but cannot be sold because of visual flaws. The Production Manager is supposed to scrap all such damaged product and write all such losses off as waste, but you discovered that he has been giving the damaged food to a charity that assists homeless people. No records are made of such gifts in order to conceal the losses due to manufacturing errors. What should youdo?

Do nothing, this is a good cause and the amount isinsignificant.

Instigate disciplinary action, this is both theft and poormanagement.

Instigate a confidential, but documented, review with the Production Manager and tell him tostop.

Instigate a review of the production process to potentially reduce the amount of wastage.

Instigate a process whereby edible but unsellable items can be given to the charity officially.

Answer: C, D,E Question No3:

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 teamproceed?

Conduct additional detailed testing on overtimepayments.

Conduct additional detailed testing of allfigures.

Increase the evaluation of inherentrisk.

Increase the evaluation of controlrisk.

Answer: A Question No4:

In relation to the use of the adjusted present value (APV) technique, which of the following statements arecorrect?

To apply APV, the proportions of debt and equity in the capital structure must be known.

To apply APV the actual amounts of debt and equity in the capital structure must be known.

The interest tax shield on the project's debt must be known, or at leastestimated.

The weighted average cost of capital - net present value technique and the APV technique will, if applied correctly, give the sameanswer.

Answer: C, D Question No5:

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 ethicalrisk?

Being asked to buy very small gifts for keyclients.

Being asked to work weekends, playing golf withclients.

Being asked to work weekends, taking clients to night clubs making sure they have as much alcoholic drink as they want so that they will sign contracts.

Being asked to work weekends working out tenders for newcontracts.

  • Answer:C

  • Question No6:

  • A project has been evaluated on the basis that it will cost $14 million and will have a net present value of $2.3 million.The project has commenced and $3 million of the initial $14 million has been invested. A problem has been discovered that will cost an additional $2.5 million to rectify. The $2.5 million will be payable immediately. What is the NPV of continuing with thisproject?

  • -$3million

  • -$0.2million

  • $1.8million

  • $2.8million

  • Answer: D Question No7:

  • The management of U is reviewing internal controls throughout the company. It has noted thefollowing:-

  • In the trade receivables section, journal adjustments are made by the clerks, without any reference to their supervisor. Journal adjustments may relate to sales returns, discounts allowed, or transfers betweenaccounts.

  • In the purchasing department, the purchasing manager selects and approves all suppliers, as they are the only person with sufficient experience to do so. They use a very limited number of suppliers because they can rely on these suppliers to provide goods of the quality required at a competitive price. They do not keep any documents in relation to negotiations with other potential suppliers or other quotes obtained. In relation to the above, which of the following statements are valid?

    • The fact that the purchasing manager uses a very small number of suppliers is, in itself, a sign of poor internalcontrols.

    • It is acceptable for clerks in the trade receivables section to make journal adjustments without authorisation provided the amounts involved are not material to U's financial statements.

    • It is acceptable for clerks in the trade receivable section to make journal adjustments without authorisation, provided they have no access to cashreceipts.

    • The fact that the purchasing manager does not keep documentation relating to negotiations with suppliers, or potential suppliers, is evidence that they are involved in fraudulentactivity.

  • Clerks making journal adjustments without reference to their supervisor is evidence of inadequate separation ofduties.

  • The way the role of purchasing manager is carried out in U increases the chance that the company will fall victim to fraudulentactivity.

  • Answer: E, F Question No8:

  • A US company has to pay £500,000 for a newmachine.

  • You have the following information oncurrencies.

  • EUR 1 = £1.2300 EUR 1 = USD1.6200

  • What is the cost of the machine inUSD?

  • Give your answer to the nearest$.

  • Answer: $658501,$658537

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