Question 1

D plc is a public relations company. Shares in D plc have recently been listed on the UK stock exchange.
D plc has an internal audit department that reports to the Chief Executive Officer (CEO). The CEO is considering outsourcing internal audit to an audit firm, whichwould not be the firm that conducts D plc's external audit.
Identify THREE advantages to D plc of outsourcing internal audit in this way.

Options :

A : Doing so may improve independence.

B : Decisions relating to internal audit can be based solely on cost.

C : Internal audit will have a better understanding of D plc-s objectives and culture.

D : Specialist skills may be more readily available.

E : Risk of staff turnover is passed to the outsource company.

Answer: A,D

Question 2

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?

Options :

A : $9,493

B : $25,606

C : $54,120

D : $115,606

Answer: B

Question 3

You are theManagementAccountant for a company which supplies baked food to a string of retail outlets; biscuits, cakes, savoury snacks etc.
You discover that a trainee employee, who is responsible for cleaning out the delivery vans has been taking damaged goods and packets which have reached their sales expiry date and has been selling them to friends. These products would otherwise have been discarded as waste.
The trainee in question is the nephew of one of the senior managers.
What is the correct course of action?

Options :

A : Have a quiet word with the trainee and ask him to stop.

B : Have a quiet word with the senior manager, the trainee-s relative and askthem to deal with it.

C : Document the facts and escalate to the trainee-s manager.

D : Do nothing, the product was designated as waste anyway.

Answer: C

Question 4

With regard to the rote of the audit committee which of the following statements are correct? Select ALL that apply

Options :

A : The audit committee should design the system of internal controls

B : The audit committee should decide annually whether it needs an internal audit function

C : The audit committee should decide annually whether it needs an external audit function

D : The audit committee should review and monitor the effectiveness of the company-s internal audit function

E : The audit committee should provide arrangements for whistle blowing

F : The audit committee should engage consultants to carry out business reviews

Answer: A,D

Question 5

M, a manufacturing company, has had some problems with defects in one of the main productsitproduces. This product has been made by the company for many years and is very profitable. Last monthithad 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?

Options :

A : M could increase the number of quality control staff.

B : M could introduce a procedure where quality control staff sign a form at the end of each dayto say they have examined 1 in 10 products for defects and they are satisfied with the quality.

C : The production director could examine one in every 10 products and sign a form to say they are satisfactory.

D : M could service machinery at least once a month as recommended by the machinery supplier.

E : M could check all employees qualifications to ensure they are qualified for their jobs.

Answer: A,B,D

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