Free CIMA CIMAPRA19-P03-1-ENG Exam Questions

Question 1

The management of U isreviewing internal controls throughout the company. Ithasnoted the following:-
1. In the trade receivables section, journal adjustments are made by the clerks, without any reference to their supervisor. Journal adjustments may relate to sales returns, discounts allowed, or transfers between accounts.
2. In the purchasing department, the purchasing manager selects and approves all suppliers, astheyarethe only person with sufficient experience to do so. They usea very limited number of suppliers becausethey can rely on these suppliers to provide goods of the quality required at a competitive price. They donot keep any documents in relation to negotiations with other potential suppliers or other quotes obtained.
In relation to the above, which of the following statements are valid?

A : fact that the purchasing manager uses a very small number of suppliers is, in itself, a sign of poor internal controls.

B : is acceptable for clerks in the trade receivables section to make journal adjustments without authorisation provided the amounts involved are not material to U's financial statements.

C : is acceptable for clerks in the trade receivable section to make journal adjustments without authorisation, provided they have no access to cash receipts.

D : fact that the purchasing manager does not keep documentation relating to negotiations with suppliers, or potential suppliers,is evidence that they are involved in fraudulent activity.

E : erks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.

F : way the role of purchasing manager is carried out in U increases the chance that the company will fall victim to fraudulent activity.

Answer: A

Question 2

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?

A : could increase the number of quality control staff.

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

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

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

Answer: A,B,D

Question 3

MNBis a multinational IT company with headquarters in Asia and with operations in all continents.
MNBisattempting toexpand its operations in Europe. This is seen as a major challenge as the European market is very well developedand highly competitive.
MNBdevelopsandmanufacturesits own products. Parts and assemblies aresourced across Asia, America and Europe. These are sometimes purchased locally as a condition of a contract, but MNB aims to include as much of its own equipmentas possible. Transfer pricesbetween MNB's subsidiariescan be set in YEN, USD, EURO, GBP. Transfer prices are revised every month in line with production times as most goods are made on short order with sales cycles running at 3-4 months.
What types of risk are being presented here?

A : litical risk

B : rrency risk

C : onomic risk

D : vironmental risk

E : aud risk

F : gal risk

Answer: A,B,C

Question 4

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.

A : ing so may improve independence.

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

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

D : ecialist skills may be more readily available.

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

Answer: A,D

Question 5

C is a large international supermarket chain. It has many thousands of suppliers and many thousands of potential suppliers competing for shelf space m its supermarkets.
Which of the following provisions would be appropriate for C to include m its ethical code in relation to its suppliers?
Select ALL that apply

A : hall insist on an exclusivity agreement with each supplier so that identical products are not available from other outlets

B : hall endeavour to adhere to the terms of its contracts with its suppliers at all times

C : hall continuously remind suppliers that it always has several alternative suppliers to choose from.

D : hall not use its buying power unscrupulously.

E : hall keep confidential all information received from suppliers and potential suppliers

F : hall endeavour to take as high a percentage of each supplier's output as possible

Answer: A,B,D