Question 1

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?

Options :

A : There is no acceptable level of risk for a major nuclear accident and so the probability has little information value in itself.

B : The probability is so low as to be ignored.

C : The directors will be able to argue that they were not negligent in the event of a major disaster within the 20 year period.

D : The calculation of a precise probability demonstrates that the engineers who conducted the inspection are experts in their field.

Answer: A

Question 2

KLtdisan 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'sscope of operation is too narrow and wishesto diversify.

IdentifyTWOactions that K Ltdshould take immediately.

Options :

A : Set up a number of activity holidays; adventure, sports and trekking for example.

B : Bulk book cruise accommodation and create a special package deal for retired couples.

C :

Expand the number of locations it currently serves.

D : Re-image the locations it currently serves to make them more exotic and family friendly.

E : Review the customer base looking at feedback, repeat sales and single visit statistics.

F : Engage market researchers to look at future trends in holiday requirements.

Answer: A

Question 3

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?

Options :

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

B : 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.

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

D : 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 fraudulent activity.

E : Clerks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.

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

Answer: A

Question 4

Zia is an accountant and wishes to take out a Forward Rate Agreement (FRA)as a hedging instrument. The company treasurer has advised that a short-term interest rate (STIR)future would be better.

Which of the following is true of an STIR?

Options :

A : A STIR can be tailored to the exact needs of the company.

B : A STIR is flexible and the position can be closed quickly and easily.

C : A STIR must be kept for the whole duration of the contract.

D : If interest rates have gone down the price of the future will have fallen.

Answer: B

Question 5

Which TWO of the following are reasons for a company to comply with the Committee of Sponsoring Organisations of the Treadway Commission 2017 Enterprise Risk Management Framework (COSO Framework)?

Options :

A : Complying with the COSO Framework will mean all employees of a company will comply with internal controls

B : Complying with the COSO Framework will mean that a company-s internal controls will work properly

C : Complying with the COSO Framework will mean there is a good structure to a company-s risk management system

D : Complying with the COSO Framework will mean that all staff will understand a company-s risk management system

E : Complying with the COSO Framework will improve a company-s reputation

Answer: A,C