CIMA CIMAPRA19-P03-1 Quiz 1 Topic 1 Questions 1-5

Question: 1

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?

AYGH should consider introducing more detailed checking of the assumptions underlying the costs of future projects.

BThe production department should not be granted funding for future projects unless there are compelling reasons to proceed.

CG should be held accountable for the overspend on the project.

DH should be held accountable for the overspend on the project.

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Question: 2

COM is a well established company in the construction industry The company was founded by the Mac family 30 years ago and several family members still serve on the Board The company obtained a listing five years ago The Board has an appropriate balance between executive and non-executive members It also has audit remuneration and nomination committees The average age of board members is 68

COM is profitable but profit margins have been falling steadily and this year's revenues are lower than it was achieved last year The Board recognis thai it does not have a long term strategy in place and has been losing business to newer, more aggressive competitors

Which THREE of the following statements are correct?

AThe remuneration committee should consider incentives such as share options to encourage the Board to focus on COM's long term strategy

BThe nomination committee should have had a succession plan in place for directors.

CThe nomination committee should be operating for the benefit of the directors.

DThe audit committee should have alerted the Board to the impact of falling profit margins

EThe non-executive directors should have challenged the lack of long term strategic planning

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Question: 3

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?

AA high level of subjective judgment is required from the decision maker.

BIt avoids the need for the investor to estimate an appropriate discount rate which reflects the risk of the project cash flows.

CBy building a risk adjustment into the discount rate, it takes greater account of risk in later time periods.

DMore risky projects are more likely to be accepted using this method of appraisal.

EThe method produces the most appropriate results in cases where project cash flows do not increase in risk over time.

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Question: 4

K plc is a large listed company in the retail industry. It has recently appointed T as a non-executive director. T has never had any previous involvement with K plc but is well known to K's Chief Executive Pbecause T is the Managing Director of K plc's largest supplier.

K has recently expanded into Asi

a. Doubts about the wisdom of the move have been expressed in the financial press with some journalists commenting that it has exposed K plc to higher degrees of risk than previously. The move had been approved by the Risk Committee which consists of four Non-Executive Directors (NEDs) all of whom have significant experience in business.

K plc does not have a Nominations Committee. Nominations to the Board are usually proposed by P and generally agreed by the other directors.

In relation to the above scenario which of the following comments is valid?

AK plc is in line with best practice as itonly has NEDs on its Risk Committee.

BThere is no possible conflict of interest in relation to T's position as a NED and as Managing Director of a supplier company since, in both roles, he would clearly want K plc to prosper.

CThe Risk Committee should have rejected the proposal to enter the Asian market merely because itexposed K to greater risk than the other markets in which it operates.

DThe absence of a Nominations Committee exposes K plc to the risk that the Chief Executive may have unfettered power.

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Question: 5

Which of the following statements concerning the role of the Audit Committeeis correct?

AThe Audit Committee should provide arrangements for whistle blowing.

BThe Audit Committee should design the system of internal controls.

CThe Audit Committee should engage consultants to carry out business reviews.

DThe Audit Committee should review and monitor the effectiveness of the company's internal audit function.

EThe Audit Committee should decide annually whether it needs an internal audit function.

FThe Audit Committee should decide annually whether it needs an external audit function.

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CIMA CIMAPRA19-P03-1 Quiz:1 Topic:1 Questions:1-5