P3 Risk Management Question and Answers

XYZ is a large supermarket chain which has engaged in online shopping and home delivenes It has a 24/7 service which runs on a central server allowing its customers to input orders at any time

XYZ runs a card loyalty scheme which is hosted on the central server All transactions, whether shop based or on-line, create an update on the central database on the central server

Which THREE of the following types of Personally Identifiable Information (Pll) will XYZ have to hold for its customers?

Which TWO of the following are benefits of carrying out a post-completion audit of capital projects?

A US company enters into a five year borrowing with bank A at a floating rate of USD Libor plus 2%.

It simultaneously enters into an interest rate swap with bank B at 3.5% fixed against USD Libor plus 1%.

What is the hedged borrowing rate, taking the borrowing and swap into account?

Give your answer to 1 decimal place

TTO is seeking to recruit a new non-executive director TTO produces high quality women's clothing, which it sells to retailers Some clothing is sold under the retailer's own brand names, some is made on behalf of recognised clothing designers TTO is a well regarded company and its products are of a very high quality.

Several applications have been received, and the Board is seeking to make a shortlist by eliminating unsuitable candidates

Which THREE of the following would make a candidate unsuitable for appointment to the post?

Move the category of risk to the box beside the risk description it best matches.

YUI owns 18 factories, which are spread around the country. Each factory employs 500-700 production staff and has its own administrative and accounts departments.

It has recently been discovered that the manager in charge of YUI's Hightown factory has been overstating his personal expenses claims for the past five years. The total amount stolen in this manner has been estimated at $10,000.

Why would it have been relatively difficult to have prevented this fraud?

A US company has to pay £500,000 for a new machine.

You have the following information on currencies.

EUR 1 = £1.2300

EUR 1 = USD 1.6200

What is the cost of the machine in USD?

Give your answer to the nearest $.

Will owns $400,000 of shares in Company X.

Company X has a daily volatility of 1% of its share price.

Calculate the 28 day value at risk that shows the most Will can expect to lose during a 28 day period.

(Will wishes to be 90% certain that the actual loss in any month will be less than your predicted figure).

Give your answer to the nearest $000.

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?

The internal audit department should always give a report at the end of its audit. This report is intended to be useful and help the company going forward. The report should always include any recommendations for improvements. Which of the following statements are true and which are false?

H sells machinery and also associated services, such as advice and repairs. H's industry is going through considerable transformation.

Classify each of the examples of information available to H's management as strategic, operational or of having little value.

The management of U is reviewing internal controls throughout the company. It has noted 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, 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?

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 $.

A has an opportunity to invest $90,000 in a project that is expected to generate annual cash inflows of $60,000 for each of the next three years. The project's beta coefficient implies a discount rate of 12% for this project, based on a risk-free rate of return of 3%.

A is prepared to forego the expected cash flows from this project in return for a guaranteed payment of $50,000 at the end of year 1, $42,000 at the end of year 2 and $30,000 at the end of year 3.

What is the certainty equivalent value of this opportunity to A?

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?

Which of the following scenarios might be relevant stress tests for a potential lender to conduct? Which TWO of the following answers are correct?

H Ltd is a logistics company which is likely to be seeking a Stock Exchange listing shortly. The directors wish to strengthen the company's internal controls.

Which of the following statements are valid?

The Chief Executive Officer (CEO) of a quoted company has visited the company's Information Technology (IT) Centre in order to meet with the Head of IT. The CEO was concerned to discover that the door to the IT Centre was unlocked, even though the receptionist was not at their desk.

Which THREE of the following are correct?

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?

CW is a large company in the food production industry. It has grown over the years by the acquisition of several smaller rivals CW has ten branches located in its home country and has just opened a foreign branch for the first time It has recently made some changes to the structure and implementation of its control system.

Which TWO of the following changes would be most likely to improve the overall control system?

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?

ABC is a large supermarket chain which also has online shopping and home deliveries It has a 24/7 service which runs on a central server allowing all customers to enter new orders at any time This is a business critical service which, if not available, may lead to customers turning to alternative supermarket chains offering similar services, resulting in immediate turnover loss and possible long term customer loss.

ABC is contemplating the implementation of a hot standby facility, not only to cover for emergency disaster recovery, but also to allow for business continuity, allowing necessary maintenance and updates without service interruption.

Which of the following cybersecurity objectives is ABC concerned about in this scenario?

Which of the following statements concerning the role of the Audit Committee is correct?

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?

T has its computer facilities in a building adjacent to its headquarters Severe structural problems have been discovered with this building and T has been advised that the only option is demolition and rebuild This leaves T with strategic decisions to make about its IT provision and it has decided to investigate the outsourcing of its services.

Which TWO of the following factors should T consider as most important at this stage?

TRF is conducting a post completion audit on an investment in a pollution control machine that has reached the end of its five year useful life.

TRF could have been heavily fined if the machine had failed to keep pace with the output of emissions, measured in units. TRF's cost of capital is 10%. When the machine was purchased, there was a choice of three machines on the market:

TRF purchased the Big machine, but annual requirements only exceeded 600,000 once, in year 3, when 720,000 units of emissions were emitted.

Calculate the amount that the post completion audit shows TRF overpaid for the ownership costs associated with this machine.

Give your answer to the nearest whole $ (in $'000s).

Which of the following is an ethical dilemma?

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?

Which categories on a risk map best describe the loss of sales floor staff in a fast fashion chain?

Under the COSO Enterprise Risk Management Framework, who is responsible for risk management?

CVB is a major chain of pharmaceutical retailers that is quoted on its home stock exchange.

CVB's Chief Executive Officer (CEO) persuaded a former school friend to join CVB's Board as Non-executive Chair It is not widely known that the two have been lifelong friends. The Chair tends to defer to the CEO on all matters arising at Board meetings

Which of the following statements are correct?

Select ALL that apply.

ABC produces fashion garments for sale m its chain of high street retail outlets.

Which THREE of the following activities would result m the organisation having to review its cyber security risks management program?

Company W produces mobile phone components and has recently tendered for a substantial contract. The results of the tendering process will not become available until three months from now. If the company is successful it will require 2,000 units of a commodity which is currently traded in an open commodity market for $740 per unit. However, there has been speculation that this commodity could increase substantially in price over the next three months and so the company is considering purchasing the commodity now and storing it for three months.

The funds to buy the commodity would be borrowed at an annual interest rate of 7% and the storage cost of the product would be $5.40 per unit per month. The storage costs would be paid at the end of the three month storage period.

Which of the following represents the gain or loss (to the nearest thousand dollars) that will accrue to Company W assuming that the price of the commodity rises to $800 in three months' time?

In terms of Cyber Security, which THREE of the following represent Personally Identifiable Information (Pll)?

YHJ is considering an investment in a project that will cost $20 million. Annual fixed costs will be $12 million per year, excluding depreciation. Annual sales are forecast at 5 million units, with a contribution per unit of $8. After five years the equipment will be worn out and YHJ will have to spend $50 million on disposal costs. The discount rate is 10%.

Calculate the sensitivity of the net present value of this project to a 20% increase in the disposal costs.

The safety guard on a piece of equipment was broken. The factory manager suspended an operator who refused to operate the equipment until it was repaired. The factory manager paid another operator a bonus for operating the damaged equipment until the safety guard could be repaired.

What does this incident say about the control environment within that factory?

H is a farmer.  An outbreak of a contagious animal disease has just been detected near the region where the farm is located. This could potentially lead to substantial financial losses for H.

In these circumstances, which of the following responses by H is the most appropriate?

SDF is a quoted company. Which of the following matters should normally be dealt with by SDF's audit committee?

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?

B is a company with a strong risk appetite. Which of the following are benefits of using the certainty equivalent method of capital investment appraisal in B's case?

MNO is a hotel chain which consists of many small local hotels spread throughout Sealand and often used by business customers It has decided to undertake scenario planning to see how it might be affected by changes in the future.

Which TWO of the following scenarios would be helpful in strategic scenario planning for MNO?

Which THREE of the following are principles of good corporate governance according to the UK Corporate Governance Code?

JHU has recently completed an eight year project. The project was evaluated at a discount rate of 10% and was accepted because the net present value was $18 million.

In year 3 of the project there was a significant unexpected repair arising because of the implementation stage of the project was rushed and some checks on equipment were skipped to save time. The cost of this was $8 million.

In year 8 of the project the costs of dismantling the project were $11 million more than anticipated because of unexpected changes to the law concerning disposal of industrial scrap.

How should these findings be reflected in the post completion audit?

You are a junior accountant in a local accountancy firm with many clients in various businesses.

Your immediate manager has asked you to collect certain personal details about clients' staff from the firm's records. You suspect that his intentions are malicious.

You asked your manager to explain why he required these details and he told you it is none of your business.

What should you do? Select TWO responses.

P is a consulting firm that provides technical advice to the oil industry. The company has consulting teams that specialise in specific areas, namely drilling, off-shore, health and safety, oil well management and ng management. Each team's consultants are charged out to clients at the same daily rate.

The demand for different skill sets varies constantly due to factors such as movements in oil prices. Exploration increases when the oil price rises and there is a greater focus on maintaining existing wells when the price fans.

The performance of P's sales team is measured in terms of revenue, based on the number of consultancy days sold Frequently the sales team agree to contracts without first checking that the relevant consulting team has consultants available. The work then has to be undertaken by subcontractors at P's expense. Sub-contractors cost more and their use can also lead to P's own consultants being under-utilised when assignments could have been scheduled more efficiently.

Which TWO of the following would correct this behavior?

B is a small retail bank that offers customers many on-the services B is keen to ensure sound security both to protect the bank's assets and also to safeguard customer privacy

B's IT Security Manager has suggested that the bank should use two phase authentication for access to the on-line systems

Which TWO of the following are examples of two phase authentication?

Which of the following is the major advantage of Cloud storage for an enterprise?