P3 Practice Exam Questions with Answers Risk Management Certification

ABC has recently appointed a Chief Information Officer who has announced that he wants to start a major clean up starting with all desktop and laptop equipment.

Which THREE of the following measures should be adopted to help enhance security'?

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.

Which of the following statements are true of economic risk?

RFD, a listed company, is considering making an investment in a risky new venture. RFD has a substantial cash surplus that will be used to acquire the necessary resources. It is unlikely that RFD would have been able to raise finance for this investment because the company is already highly geared.

Which of the following statements about stakeholders' conflicting interests are true?

UIO designs clothes and pays third parties to manufacture them A recent television programme showed that two of the factories used by UIO were employing illegal immigrants whose status was used by the factory's owners to force them to work for low wages and in unpleasant and dangerous conditions. These factories were located in a developed country with strong labour laws

Classify each of the following statements as true or false:

Assuming a company has both internal auditors and risk managers, indicate which of these would perform the duties listed below:

JHG manufactures inexpensive cars that compete largely on price Its cars have very basic equipment and small but economical engines JHG's Board is considering launching a luxury brand of cars that will be far better equipped, more comfortable and have much better performance

Which THREE of the following would be relevant factors to incorporate into the stress testing of this new strategy to create a luxury brand?

SQH manufactures mobile phones SQH's Board is currently undertaking a long-term planning exercise as part of the process of strategy development The Board is considering expanding the number of countries it currently exports products to.

Which THREE of the following could cause difficulty in forecasting accurately'?

TLY sell building materials such as bricks sacks of concrete and paving slabs to builders Materials are kept in a large yard Customer orders are fulfilled by a team of 30 employees who use forklift trucks to move sold items to the loading bay, from where they are loaded onto lornes for dispatch to the customer The sales office prepares dispatch notes, which are used by the yard employees to identify the items that have been ordered

Which TWO of the following controls would be cost-effective ways to prevent the theft of inventory by TLY's staff?

H manufactures and sells healthy dietary supplements. The company recruits individuals as part-time agents to sell its products to friends and colleagues. These agents are required to buy H's products and to resell them at a small mark-up.

For a fee, H will provide agents with training in persuasive selling techniques. Agents who pass exams at the conclusion of this training can become distributors. Distributors buy bulk quantities of H's products at a discount and can recruit their own sales agents. Those agents can also take training and can recruit agents of their own.

At what stage does H stop being a legitimate business and become a pyramid selling fraud?

A company has a sound system of internal controls that have been reviewed by the internal audit department.

Which TWO of the following correctly identify reasons why the company's control system might fail to prevent or detect an irregularity?

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 $.

AB is a manufacturing company which relies heavily on its computerised systems for customer management

Which of the following is the most important factor which will enable AB to continue to operate after an incident which destroys its central computer*?

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?

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 three years ago as a condition of an investment by a venture capital fund.

The Board meets in half-day sessions once 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?

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).

M is a listed company. It is hoping to invest in a risky new venture. M has a substantial amount of cash to invest in the venture. M would have found it difficult to raise new finance as it has a high level of gearing. Which of the following statements about stakeholders' conflicting interests are true?

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

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?

You are the management accountant for YY a food manufacturing company with an annual sales revenue of $6 million

You discover that the production manager's records are inconsistent Raw materials purchased do not agree with the total recorded for transfers to production plus wastage There is an average shortfall of 2% of purchases

You have investigated and discovered that there are often errors made during manufacturing that results in food that is safe to eat but. because of visual flaws, cannot be sold

The production manager is supposed to scrap all such damaged products and write all such losses off as waste You have discovered however 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

Which of the following actions should you take? Select ALL that apply

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?

B is a family run security company with a number of prestigious clients who rely on it to maintain online access to their CCTV and alarm systems and respond to any detected intrusions or malfunctions.

It designs and installs security systems for a number of UHNW (Ultra High Net Worth) individuals who may have several seasonal and city residences largely unoccupied for many months of the year.

B's reputation as 100% secure is crucial to its on-going success in this very specialised marketplace.

Select THREE factors which should be given prominence in B's fraud risk management strategy.

They key objective of maximizing shareholders wealth would indicates that a capital investment project with a large positive BPV should be accepted.

Which THREE of the following statements are correct?

The managers of a company are agents for the shareholders tasked with increasing shareholders' wealth. Which of the following will usually increase shareholders' wealth?

Kate is a management accountant. Her immediate superior plans to apply for a promotion and his strongest competitor is the sales manager. Kate's superior has ordered her to set unattainable sales targets in a sales budget in order to reduce the sales manager's promotion prospects. He told her not to tell anybody.

Kate asked the finance director for advice. He told her that he wanted her immediate superior to get the promotion and so she should set the unattainable budget as instructed.

Kate set the budget as instructed.

Which THREE fundamental ethical principles has Kate breached?

The Board of Directors of VCX, a state-owned electricity company, includes four executive directors the Chief Executive Officer, the Finance Director the Operation Director and the Technical Director

All of the shares in the company vest in the Office of the Minister for Energy, who is entitled to appoint two non-executive directors to the Board It has been alleged that the Minister appoints political "insiders" who have no particular knowledge of. or interest in. the electricity industry

There are three further non-executive directors

• L, who spent seven years as Chief Executive of VCX, but retired from that role two years ago,

• M, who spent several years on the Board of a state electricity company in a different country to VCX but who resigned from it before accepting the position with VCX: and

• N, who is a qualified and experienced professional accountant

In relation to best practice in respect of Corporate Governance, which of the following statements are valid? Select ALL that apply

YGH has recently completed a post completion audit on a five year contract that has only recently come to a conclusion. The main finding was that the project delivered most of the expected benefits, but that it cost significantly more to implement than had been anticipated at the project appraisal stage. YGH would not have proceeded if the true cost had been known at that stage.

The project was the responsibility of the production department, which is presently managed by G.

When the project was proposed, the production department was managed by H. H is now YGH's Director of Operations.

How should the finding from this post completion audit be interpreted?

TYU is a retailer selling televisions. The company is financed wholly by equity.

Why might TYU be exposed to interest rate risk?

Company directors who exercise executive share options generally resell the shares immediately, rather than holding them. Which of the following best explains this behavior?

YHU manufactures flour from wheal (hat it purchases from wheat wholesalers who buy the gram in bulk from farmers around the world and import it to YHU's home country.

YHU sells its flour as "organic and free from genetically modified grain" It is difficult to test wheat to ensure that it is organic and impossible to prove that it has not been obtained from genetically modified crops YHU must trust its wholesalers to check the provenance of the wheat that they buy for resale to YHU.

Without YHU's knowledge, a consignment of wheat that it has used to make flour was purchased from a farmer who used genetically modified seed. The wholesaler made an error in tracking this consignment through its inventory system and sold it to YHU as organic and free from genetically modified gram

Which TWO of the following are correct?

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?

JHU is a retail chain that has 20 shops JHU's Internal Audit Department has just completed an investigation into the operation of controls over credit card payments by shop customers In 12 cases, the shops were complying with JHU's standard procedures The other 8 shops had serious deficiencies that differed between shops.

The Internal Audit Department has drafted a detailed report on the outcome of the audit visit carried out at each shop, but has not yet submitted them to senior management.

Which TWO of the following statements are correct?

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?

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

Which of the following best describes the relevance of value at risk (VaR) as a decision tool?

L is a specialist deep sea diving company The company specialises in challenging tasks that are often rejected by other companies as being too risky Most assignments are difficult and some are very dangerous L has very experienced divers who are highly trained and are safety conscious In spite of the dangerous work, L has an excellent success rate and is highly sought after L charges very high fees for its work Despite L's precautions, the likelihood of accidents is high and the consequences are also high L has an excellent insurance which has always been very expensive but the price has just been increased by 40%

Which of the following is correct?

Achieving the budget is often used as a good performance measure. However, there are problems with budgets which may mean they are not always good measures of performance.

Which TWO of the following statements about budgets suggest that they should not always be used to measure performance?

N, a large company in the food production industry, has grown over the years by the acquisition of several smaller rivals. The company 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 these would be most likely to improve the overall control system?

A UK based company is considering an investment of GB£1,000,000 in a project in the USA. It is anticipated that the following cash flows will arise from this project.

The cash flows will be either US$400,000 with a probability of 40% or US$700,000 with a probability of 60% for each of the next three years; remitted to the UK at the end of each year.

Currently GB£1.00 is worth US$1.30.

The expected inflation rates in the two countries over the next four years are 2% in the UK and 4% in the US.

Applying the Purchasing Power Parity Theory, which of the following represents the expected net present value of the project in GP£ (to the nearest whole pound)?

Y Company wishes to recruit an employee who will have responsibility for the receipt and handling of cash

From the point of view of the internal auditor which THREE of the following would be most likely to provide useful information about the candidate"?

B is a horticultural retailer with limited funds available to acquire new retail property.

B's Finance Manager has analysed two potential property investments. Investing in property P shows an IRR of 21% while the IRR on property Q is 17%.

The Finance Manager has also advised that the NPV for property P is $750K, while the NPV of property Q is $850K.

The Board needs to choose between the two properties as it has insufficient funds for both. Based purely on the Finance Manager's analysis, which of the following is true?

Which THREE of the following form part of the role of Internal Audit?

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?

QAW is a quoted building company QAW has detailed rules relating to the wording of its contracts and the need to seek Board approval for any changes to the standard wording

The Convener of the Audit Committee has just received a copy of an internal audit report relating to the QAW Land Reclamation subsidiary The subsidiary has signed several construction contracts over the past two years that have made significant changes to the standard wording, with no attempt to seek approval from QAW's Board

The internal audit report quotes the manager in charge of QAW Land Reclamation as refusing to accept that there is a compliance error at the subsidiary The manager stated that the nature of the business done by QAW Land Reclamation would make it inappropriate to use the standard contract terms and that it would be impractical to seek permission for every one of the many changes that are necessary

Which of the following would be an appropriate response to this item by QAW's Board?

Jo is a well known entrepreneur who founded JIS. a global producer or high technology equipment JIS has grown rapidly and was listed two years ago JIS's share price has grown steadily since its listing Jo serves as both CEO and Chair A recent newspaper article has suggested that JIS would benefit from having a separate CEO and Chair

Which TWO of the following arguments are valid?