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?

• A. It avoids the need for the investor to estimate an appropriate discount rate which reflects the risk of the project cash flows.
• B. A high level of subjective judgment is required from the decision maker.
• C. The method produces the most appropriate results in cases where project cash flows do not increase in risk over time.
• D. By building a risk adjustment into the discount rate, it takes greater account of risk in later time periods.
• E. More risky projects are more likely to be accepted using this method of appraisal.

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?

• A. It is impossible for anybody to check expenses claims submitted by a senior manager.
• B. Senior members of management can often override controls.
• C. Internal controls cannot address fraud, only error.
• D. Managers are generally highly intelligent and are generally capable of designing ways to defeat control systems.

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.

• A. Specialist skills may be more readily available.
• B. Risk of staff turnover is passed to the outsource company.
• C. Decisions relating to internal audit can be based solely on cost.
• D. Doing so may improve independence.
• E. Internal audit will have a better understanding of D plc's objectives and culture.

B is a family run security company with a number of prestigious clients who rely on it to maintain online access to their CCTV and alarm systems and respond to any detected intrusions or malfunctions.
It designs and installs security systems for a number of UHNW (Ultra High Net Worth) individuals who may have several seasonal and city residences largely unoccupied for many months of the year.
B's reputation as 100% secure is crucial to its on-going success in this very specialised marketplace.
Select THREE factors which should be given prominence in B's fraud risk management strategy.

• A. B should ensure that employees who design or install security systems are not involved with the operation of those systems once implemented.
• B. B should carry out background security, health and financial checks on all employees, their immediate family members and associates on an annual basis.
• C. B should have an active whistle-blower policy whereby all staff are encouraged by positive reward to report any suspicions they may have about other employees.
• D. B Should revise and publish their fraud policy document to employees every three months, highlighting any new elements and industry developments.
• E. B should inform clients that they have a stringent anti-fraud policy.
• F. B should ask new employees to fill in a declaration that they are honest and have no criminal convictions for dishonesty. That can be filed as evidence that the company took this precaution.

TDC is a company which runs gas-fired power stations in western Europe. The Risk Committee has just received a report that a power station built to the same design and specification in a developing country has recently collapsed. The causes of the collapse are unclear but the consequences for TDC would be catastrophic if something similar were to happen in Europe Which of the following actions being considered by the Risk Committee are ethical?
Select ALL that apply

• A. Commission a reputable firm of structural engineers to carry out a review of all power stations owned by TDC
• B. Draw up contingency plans in case some of TDC's power stations need to be shut down
• C. Issue a press release confirming that all TDC's power stations are "entirely safe'.
• D. Attempt to increase the level of insurance cover against this type of eventuality
• E. Send experts employed by TDC to the site of the collapse so that they can gather information first hand on what happened
• F. Decide that the information available to date is too uncertain to take any action for now