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CIMA Strategic
P3
Risk Management Questions and Answers

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Questions # 11:

JNH is a major corporation that stores its customer database in the Cloud JNH has suffered a data breach that has led to customer credit card details being made available for sale on the internet JNH's Head of Security wishes to analyse network traffic at the cloud-based server in order to gain a better understanding of the manner in which the data was intercepted, but has been refused access.

Which of the following is the most likely explanation for the third-party owner's refusal to assist JNH's Head of Security?

Options:

The Cloud is impregnable and so the breach must have been elsewhere

The network data will not have been stored by the server's owner

The server will contain data belonging to other clients

Admitting the breach would harm the reputation of the Cloud

Answer

Questions # 12:

Company A's gross profit percentage has fallen from 70% to 61 % Which of the following possible explanations would most concern the internal auditors?

Options:

During the year the raw material price increased due to an international shortage of the material

The sales director decided to reduce the selling price to increase the market share

There had been an omission of several items from the inventory records

During the year direct wages had been misclassified as indirect manufacturing expenses

Answer

Questions # 13:

B is a quoted construction company. Its Board consists of qualified and experienced engineers Which TWO of the following statements are correct?

Options:

Creating a nominations committee from B's Board will resolve any issues

B's Board cannot be blamed for recruiting like-minded individuals

The quality of Board decisions may decrease.

There is a greater risk of B's Board making strategic errors.

The greater consistency arising from the composition of B's Board will be beneficial

Answer

A, E

Questions # 14:

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

Options:

The directors receive a risk-free gain

Shareholders become nervous when the directors hold shares

The shares are out of the money at the exercise date

It is a conflict of interest for directors to be shareholders.

Answer

Questions # 15:

A hospital is part of a government provided health service which is free to patients. The management of the hospital is concerned with the need to minimise the risks to which the hospital is exposed from patient litigation.

In this context, which TWO of the following are appropriate steps to manage this risk?

Options:

Ensuring that patients undergoing procedures sign documentation to confirm that the risks have been explained to them and that they understand.

Allocating a risk score to patients depending on age, general heath and similar consideration and refusing to admit patients whose risk score exceeds a certain threshold.

Ensuring that a policy is in place to transfer or discharge critically ill patients so as to minimise fatalities in the hospital.

Ensure that proper documentation is in place for all patients showing such details as symptoms, treatments, and test results.

The management refuses to allow the hospital to participate in the Major Accident Plan for the city in which it is located. It believes the Plan could expose the hospital to excessive risk.

Answer

A, D

Questions # 16:

Internal controls are designed to provide reasonable assurance of which of the following?

Options:

Material errors will be prevented or detected in a reasonable time period by employees in the course of carrying out their job

Management's plans have not been circumvented by collusion

Management procedures and processes are properly evaluated

The internal auditing department's oversight of management's performance is achieved economically and efficiently

Answer

Questions # 17:

FBK produces motorbikes for the high end sports market. The company has recently developed a bike that uses a powerful electric motor instead of a petrol engine.

Which of the following are product risks?

Select ALL that apply.

Options:

The risk that the silent running of the bike will create a hazard to pedestrians.

The risk that a bike powered by a quiet electric motor will not create the thrilling engine noise that is prized by traditional riders.

The risk that demand for the bike will exceed production capacity

The risk that the different characteristics of an electric engine will make the bike difficult to control

The risk that FBK cannot afford to finance the working capital associated with the launch

Answer

A, E

Questions # 18:

Rio owns an architects business which employs 12 skilled architects and four administrative staff.

The Office Manager has just attended a workshop on internal controls and the way in which they can improve organisations. He intends to implement some internal controls as soon as possible.

What are the limitations of an internal control system in Rio's business?

Options:

Internal controls are only suitable for large businesses.

Employees could ignore the internal controls.

If Rio does not support the internal control system then the controls may not be adhered to.

Internal controls may slow down the speed with which the architects can respond to enquiries.

Internal controls will usually mean hiring more staff.

Answer

B, C, D

Questions # 19:

DFG is the largest bridge-building company in its home country, H. DFG works exclusively for the government of country H and the government awards DFG 80% of the contracts to build new bridges.

DFG's directors are considering using the big data approach to identify opportunities to increase sales revenues and profit.

Which of the following statements are true?

Options:

Big data has the potential to identify ways in which DFG can reduce construction costs.

DFG should supplement its existing databases in order to enhance the benefit from big data.

The big data approach may help DFG to price contract bids more accurately.

Big data has the potential to identify ways in which DFG can increase sales.

It would be unethical for DFG to use big data in order to compete even more effectively with its rivals.

Answer

A, B, C

Questions # 20:

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?

Options:

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

Appoint one of the NEDs as Chair of the Board.

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

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

Ensure 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.

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

Answer

A, B, D

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