YHU manufactures flour from wheal (hat it purchases from wheat wholesalers who buy the gram in bulk from farmers around the world and import it to YHU's home country.
YHU sells its flour as "organic and free from genetically modified grain" It is difficult to test wheat to ensure that it is organic and impossible to prove that it has not been obtained from genetically modified crops YHU must trust its wholesalers to check the provenance of the wheat that they buy for resale to YHU.
Without YHU's knowledge, a consignment of wheat that it has used to make flour was purchased from a farmer who used genetically modified seed. The wholesaler made an error in tracking this consignment through its inventory system and sold it to YHU as organic and free from genetically modified gram Which TWO of the following are correct?

• A.The risk of YHU discovering this error is minimal because the wholesaler will both have to realise its mistake and be willing to admit to it.
• B.YHU's total risk is affected by both the risk that the flour was incorrectly labelled and that the company was unaware of that fact
• C.YHU could easily eliminate the risks associated with such errors by putting a prominent warning on its flour bags that they may contain flour made from non-organic or genetically modified flour.
• D.YHU should ignore the interaction between risk factors when considering its response to the possibility of mislabelled ingredients
• E.If YHU admits to this error then there is a strong risk that customers will take legal action for being sold a dangerous product and that the courts will find in the customers' favors.

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B uses a balanced scorecard to monitor the performance of its divisions.
Classify each of the following decisions taken by a division's management team as either commercially sound or dysfunctional.

Correct Answer:

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N, a large company in the food production industry, has grown over the years by the acquisition of several smaller rivals. The company has ten branches located in its home country and has just opened a foreign branch for the first time. It has recently made some changes to the structure and implementation of its control system.
Which TWO of these would be most likely to improve the overall control system?

• A.A policy has been initiated to complete a physical inventory of all non-current assets at least annually.
  This is then reconciled with the non-current asset register.
• B.Establishing an Internal Audit department.
• C.Purchase invoices are now approved for payment at branches and a list of approved invoices are sent to head office for payment. The invoices, supporting documentation and suppliers' statements are retained at the branches.
• D.Excess funds are now invested, by the Finance Director, in short-term securities. The Finance Director initiates buy and sell transactions and she also receives and retains all correspondence relating to the investments.
• E.N has just opened a bank account in the currency in which the newly opened branch is now operating.

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The internal audit department has just completed an investigation into the HR department's procedures relating to new staff appointments The head of HR is unhappy with the draft report prepared by the lead internal auditor The report lists several cases in which appointments were made despite the fact that one or more of the entity's formal procedures were not followed The head of HR has complained that the internal auditor's comments do not allow for the fact that the HR department's staff members are often very busy and do not always have time to conduct every check.
The internal auditor's comments also reflect a failure to complete documents None of the omissions have led to the appointment of an unsuitable member of staff Which TWO of the following statements reflect an appropriate response by the board of directors to this report?

• A.The members of staff responsible for these omissions should be subjected to disciplinary action
• B.The errors are immaterial because they did not lead to an inappropriate appointment
• C.The board should be seen to support the internal audit
• D.Ignoring a compliance error altogether may undermine the control environment
• E.The procedures should be removed if the HR department staff believe that they are unnecessary

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Risk management involves all parties in an organisation.
Which of the following describe the Board's responsibilities for risk management?

• A.The Board is responsible for safeguarding the company's assets.
• B.The Board is responsible for addressing any weaknesses in internal controls.
• C.The Board is responsible for considering whether weaknesses in internal controls need to be addressed.
• D.The Board is responsible for maintaining a robust system of internal controls.
• E.The Board is responsible for choosing the least risk products to promote.

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