CIMA CIMAPRO19-P03-1 Exam Practice Test Instant Access

Question 1

H Ltdis a company providing postal and courier services to small businesses. Customers pay a monthly or annual subscription fee to use the service, plusaverysmall fee for each item delivered.

A year ago, H employed a newsalesteam. Their remuneration is dependent on the number of new customers they sign up. Sales increased dramatically in the first six months, but nowdifficulties are emerging such as new customers dropping their subscription once the initial period has expired; subscriber direct debits being returned unpaid; subscribers going out of business and other similar issues.

Which of the following would be appropriate to help resolve these problems?

AAlter the pricing structure in order to increase the price for sending each item but decrease the subscription element of the fee.

BEnsure that a credit check is carried outbefore a subscriber is accepted.

CReduce the rate of commission payable to any sales person who fails to sign up at least an agreedminimum number of customers each month.

DAlter the commission arrangements so that commission is payable only when the subscriber signs up for a second year.

EPreparing a monthly report for sales persons detailing the performance of each new customer they have signed up over the previous year.

Answer : B, D, E

Question 2

Which of the following are objectives of the audit planning procedure?

ATo work out the time and resources required for the audit.

BTo perform substantive tests.

CTo work out how audit evidence will be obtained.

DTo perform analytical review to identify possible areas for investigation.

ETo set out how audit objectives will be achieved.

Answer : A, C, E

Question 3

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.

Xplc 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 divisionAmanagers to accept the project?

AROI Yes RI Yes

BROI Yes RI No

CROI No RI Yes

DROI No RI No

Answer : D

Question 4

Which of the following are the Committee of Sponsoring Organisations (COSO) key principles of enterprise risk management?

Select ALL that apply.

AConsideration of the main risk only which is financial risk

BThe creation of a risk aware culture

CRisk management is the responsibility of the risk committee

DConsideration of risk management in the context of business strategy

EA comprehensive and holistic approach to risk management

Answer : B, D, E

Question 5

C Ltd is a private, family-owned company which is hoping to become listed on a recognised Stock Exchange within the next two years. At the moment, the Board of Directors comprises five directors; four of whom are from the founding family and all of whom are involved in the day-to-day running of the business. The remaining director obtained a seat on the Board threeyearsagoas a condition of an investment by a venture capital fund.

The Board meets in half-day sessionsonce a fortnight and the Board meetings are reasonably well run. All decisions are taken by the Board as a whole. There are no sub-committees.

Which of the following steps would it be appropriate for C Ltd to take in the light of the proposed listing?

AAppoint enough independent non-executive directors (NEDs)that they make up at least 50% of the Board.

BAppoint one of the NEDs as Chair of the Board.

CInsist that the venture capital company director be removed as he is not necessarily motivated to act in the best interests of C Ltd.

DSet up at least three sub-committees namely remuneration, nomination, and audit committees.

EEnsure that the current executive directors are given 10 year contracts starting on the day the company is floated, to ensure consistency and continuity in the management of the company.

FSet up an 'agenda setting' sub-committee consisting of the current executive directors to decide the agenda for each Board meeting.

Answer : A, B, D

Question 6

Which of the following is an ethical dilemma?

AA company is considering giving poorly-paid staff a generous pay rise.

BA company is deciding whether to issue debt or equity.

CA company is deciding whether to make a substantial bonus payment to its directors by means of cash or shares.

DA company must decide whether to settle a claim from an employee who appears to have fabricated a workplace injury. The company want to avoid the cost of defending the claim.

Answer : A

Question 7

The management of U isreviewing internal controls throughout the company. Ithasnoted the following:-

1. 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 between accounts.

2. In the purchasing department, the purchasing manager selects and approves all suppliers, astheyarethe only person with sufficient experience to do so. They usea very limited number of suppliers becausethey can rely on these suppliers to provide goods of the quality required at a competitive price. They donot 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?

AThe fact that the purchasing manager uses a very small number of suppliers is, in itself, a sign of poor internal controls.

BIt 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.

CIt is acceptable for clerks in the trade receivable section to make journal adjustments without authorisation, provided they have no access to cash receipts.

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

EClerks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.

FThe way the role of purchasing manager is carried out in U increases the chance that the company will fall victim to fraudulent activity.

Answer : E, F

CIMAPRO19-P03-1 P3 Risk Management Exam Practice Test