P3 Practice Exam Questions and Answers

You have been assigned the role of lead internal auditor. Your task is to carry out the annual assessment of the production line maintenance department.

When planning for this audit, which of the following must be completed?

Which of the following statements are true of economic risk?

Which of the following are the Committee of Sponsoring Organisations (COSO) key principles of enterprise risk management?

Select ALL that apply.

A publicly funded hospital has put various features in place in an attempt to improve strategic control and create an improved control environment.

Which TWO of the following features are most likely to meet this objective?

CDE an online ticket sales agent, has unwittingly become an accomplice in cyber crime and is suffering attacks on its own business as a result CDE's website was poorly designed and cyber-attackers have managed to inject the site with malware, so that it collects all of CDE's customer log-in information and enables the cyber-attackers to retrieve it.

The cyber-attackers subsequently use this information to set up Botnet agents in the customers' devices which are then used in a Distributed Denial of Service (DDoS) attack whenever very popular tickets are being placed on sale such as international football matches.

The cyber-attackers secure access to a single portal on the site and buy multiple tickets for subsequent sale on the black market while the DDoS causes all other portals to be overloaded preventing real fans acquiring the tickets at face value.

Which TWO of the following apply in this scenario?

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 $.

A patient has been prescribed a new medicine by their physician. The medicine is accompanied by a leaflet describing potential adverse effects associated with taking it. Most of these potentially adverse effects are trivial, but the leaflet states that three patients in every 10,000 who take the medicine suffer a severe reaction requiring urgent medical attention.

Which of the following statements is true?

VBN's home currency is the V$. On 1 January, VBN must make a payment of C$2 million on 31 March of that same year.

On 1 January the spot exchange rate was V$1 = C$0.4.

On 1 January VBN paid $180,000 for a call option to buy C$2 million for V$5.5 million on 31 March. VBN's cost of borrowing was 8% per year.

On 31 March the spot rate was V$1 = C$0.45.

What was the total cost, including the cost of the option, of settling the payable?

ZZ is a data security company that is responsible for cyber security m a large shopping mall 21 uses Network Configuration Management (NCM) to assist it in meeting the various needs of the mall's user community.

Which THREE of the following are advantages provided by NCM?

XYZ is unhappy with the way it decides on the likelihood and impact of risks when it completes the TARA matrix XYZ has decided to try other ways to get more consensus over the evaluation of risks as high, medium and low impact and likelihood

Which of the following methods is likely to be most successful?

An internal audit investigation involved conducting compliance tests on the processing of purchase invoices.

The purchase ledger clerk compares invoices against purchase orders and passes them for payment The invoices are then input into a computerised purchase ledger system The system checks that the supplier has a valid purchase ledger account, as authorised by the chief buyer, before crediting the supplier's account with the value of the invoice.

The internal auditor checked a sample of recorded purchase invoices against their corresponding purchase orders The internal auditor found four cases where invoices could not be agreed to corresponding purchase orders.

What is the potential significance of this compliance error?

Q is a company which generates electricity from alternative energy sources. It has just begun constructing a wind farm near a well-known beauty spot. The project has been controversial as campaigners say it will be noisy and unsightly.

The campaigners took legal action but lost the case. Some of them have started a campaign of direct action against Q and are physically blocking roads leading to the site and attempting to intimidate Q's staff.

Q has hired a security company to help it to protect its staff.

In relation to the ethics of this scenario, which of the following statements are valid?

Which of the following statements best explains why a corporate treasury department should be established as a cost centre rather than a profit centre?

R is a manufacturer of biscuits. The market for biscuits is extremely competitive with many companies competing for contracts with large supermarkets. The intensity of the competition means that prices are kept low; and the buyers can demand higher levels of quality, and greater flexibility in supply arrangements.

Which of the following represent ways that the use of an Information System could help R to win and retain supermarket contracts in such a competitive market?

The Chief Executive Officer (CEO) of a quoted company has visited the company's Information Technology (IT) Centre in order to meet with the Head of IT. The CEO was concerned to discover that the door to the IT Centre was unlocked, even though the receptionist was not at their desk.

Which THREE of the following are correct?

Which of the following represents the greatest risk associated with introducing a system of post-completion audit for investment projects?

M plc is an IT company that bids for large contracts to sell computer systems and also to service existing systems. M plc's senior management has always set budgets which are hard to achieve and have made no allowances for the recession.

The economy has improved and M plc's senior managers have made the budget even more optimistic. The budgeted sales target has been increased by 40%.

In the past, sales staff have not tried to achieve the budget sales because it was generally believed that the targets were impossible to reach.

M plc has recently appointed a new Sales Director who has decided that sales staff will be dismissed if they fail to meet sales targets for three successive months. He is also looking for higher sales margins than were achieved before.

What are the likely consequences of the new Sales Director's policy?

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

YUI owns 18 factories, which are spread around the country. Each factory employs 500-700 production staff and has its own administrative and accounts departments.

It has recently been discovered that the manager in charge of YUI's Hightown factory has been overstating his personal expenses claims for the past five years. The total amount stolen in this manner has been estimated at $10,000.

Why would it have been relatively difficult to have prevented this fraud?

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, which would not be the firm that conducts D plc's external audit.

Identify THREE advantages to D plc of outsourcing internal audit in this way.

Which of the following statements concerning the use of balanced scorecards to measure divisional performance is correct?

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?

A company is keen to avoid becoming a victim to malware. Which TWO of the following techniques would be valid responses to this threat?

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

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?

A firewall in a computer suite is designed to

ERT is choosing between two maintenance policies for its vehicles. The outcomes of these policies are difficult to predict and so ERT has run a simu-lation of both.

Policy 1 has an expected annual cost of $400,000 per year, with a standard deviation of $80,000.

Policy 2 has an expected value of $350,000, with a standard deviation of $150,000.

Which of the following statements are correct?

A UK based company is considering an investment of GB£1,000,000 in a project in the US

A.  

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)?

P Ltd, a manufacturing company, is considering a new capital investment project to set up a new production line. The initial appraisal shows a healthy net present value of $6,465 million at a discount rate of 10% as shown in the table below:

However, management is unsure about the demand for the product which will be produced and has insisted that the future revenues should be reduced to certainity equivalents by taking 70%, 65% and 60% of the years 1,2, and 3 cash inflows respectively.

What should P do?

J plc is a wholesale building supply business. It has a large warehouse where some of its materials are stored. Last month three accidents occurred where employees were slightly injured whilst moving items from the 5th shelf. The 5th shelf is located 15 metres up from the ground.

This is a health and safety risk and could also be a reputation risk in the longer term.

Which of the following risk mitigations should the company employ?

Which of the following is NOT a financial risk.

Identify, from the list provided, which category of business risk most accurately describes the events detailed below.

Which TWO of the following scenarios should be considered in strategic scenario planning by a publishing company that specialises in academic textbooks?

MNO is a hotel chain which consists of many small local hotels spread throughout Sealand and often used by business customers It has decided to undertake scenario planning to see how it might be affected by changes in the future.

Which TWO of the following scenarios would be helpful in strategic scenario planning for MNO?

Risk management involves all parties in an organisation.

Which of the following describe the Board's responsibilities for risk management?

R plc is considering an investment of $1,100,000 in a new machine which is expected to have substantial cash inflows over the next five years.

The annual cash flows from this investment and their probability are shown below:

Annual cash flow ($) Probability

 200,000                         0.4

 280,000                         0.5

 350,000                         0.1

At the end of its five-year life, the asset is expected to sell for $100,000. The cost of capital is 5%.

What is the Expected Net Present Value?

Give your answer to the nearest whole $.

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 Committee of Sponsoring Organisations (COSO) outlined six key principles of Enterprise Risk Management (ERM).

Which of the following are COSO key principles?

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).

B, a construction company, has a policy of carrying out a post completion audit on every construction project undertaken where the value exceeds $1 million.

What is the role of the post completion audit?

Why is it potentially useful for an organisation to maintain a risk register?

H Ltd is a company providing postal and courier services to small businesses. Customers pay a monthly or annual subscription fee to use the service, plus a very small fee for each item delivered.

A year ago, H employed a new sales team. Their remuneration is dependent on the number of new customers they sign up. Sales increased dramatically in the first six months, but now difficulties are emerging such as new customers dropping their subscription once the initial period has expired; subscriber direct debits being returned unpaid; subscribers going out of business and other similar issues.

Which of the following would be appropriate to help resolve these problems?

HWG is a large company which grows and processes coffee The coffee is sold to supermarkets, branded with their names for sale as "own brand" products HWG brands and packages the coffee using the supermarkets' own designs

HWG's directors are considering a strategic proposal to develop a range of coffees to be sold under a brand that HWG will develop

Which TWO of the following should the directors consider as part of their strategic analysis?

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

P Ltd, a service company, is seeking to recruit engineers to work in its maintenance division. Which TWO of the following suggestions will be most likely to help prevent fraud when recruiting the engineers?

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?

GHJ is a manufacturing company that insures against the financial costs associated with industrial injuries involving staff. The Health and Safety Office is part of GHJ's Operations Department. GHJ's insurers will automatically increase the insurance premium by 10% in the event of a claim against the policy.

Which TWO of the following are correct?

Return on capital employed (ROCE) can be a useful measure of divisional performance.  For which of the following types of company is ROCE likely to be most appropriate?

Which of the following is an ethical dilemma?

Move the category of risk to the box beside the risk description it best matches.