PCOA14 Final Exam - 123 PDF

Preview

Summary

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF REPRODUCTION, DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE WRITTEN PERMISSION OF THE UNIVERSITY IS STRICTLY PROHIBITED.1Univeristy of La Salette, Inc. College of Accountancy D...

Description

Univeristy of La Salette, Inc. College of Accountancy Dubinan East, Santiago City PCOA 014 – Governance, Business Ethics, Risk Management and Internal Control Final Examination General Instruction: This examination is good for 3 hours. Upload your answers in LMS using excel format. Multiple Choice: Choose the letter that corresponds your answer. (13 points) 1. The risk that refers to uncertainty about the rate of return caused by the nature of the business is A. Default risk B. Business risk C. Liquidity risk D. Financial risk 2. The risk associated with the uncertainty created by the inability to turn investment quickly for cash A. Interest rate risk B. Business risk C. Liquidity risk D. Default risk 3. The risk that the real rate of return will be lesser than the nominal or stated rate of return due to inflation is referred to as A. Purchasing power risk B. Liquidity risk C. Default risk D. Business risk 4. A. B. C. D.

Operations risk is manifested in all of the following except Interest rates volatility Process stoppage Technological obsolescence Management fraud

5. A. B. C. D.

Financial risks associated with Financial Institution include the following except Liquidity risks Credit risks Market liquidity risks Environment risk

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF REPRODUCTION, DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE WRITTEN PERMISSION OF THE UNIVERSITY IS STRICTLY PROHIBITED.

1

6. A. B. C. D.

Non-financial risks associated with Financial Institutions include the following except Derivative risk Integrity risk Leadership risk Regulatory risk

7. A. B. C. D.

The typical areas of technical risks include the following except Negligent actions Contract Conditions Failure of equipment None of the choices

8. ISO 31000 suggests that once risks have been identified and assessed, techniques to manage the risks should be applied. These techniques include the following except A. Retention B. Sharing C. Reduction D. Complete disregard 9. A. B. C. D.

The typical areas of commercial risks include the following Market Changes Treasury Risks Client Failure None of the choices

10. The technique of eliminating or reducing risk which could mean losing out on the potential gain is called A. Risk sharing B. Risk retention C. Risk avoidance D. Risk reduction 11. The typical areas of operational risks include the following except A. Client failure B. Corporate malpractice C. Market Changes D. Political Changes 12. it occurs. A. Risk avoidance B. Risk reduction C. Risk sharing

involves accepting the loss or benefit of gain from a risk when

D. Risk retention

13. The typical areas of financial risks include the following except A. Poor brand management B. Treasury risks C. Accounting decisions and practices D. Fraud Essay: Answer the following questions. (37 points) 1. Explain how the following types of risk catalyst might trigger risk (10)  Technology. New hardware, software or system configurations can trigger risks, as can new demands on existing information systems and technology. In early 2010, Metro Manila Development Authority Chair introduced a congestion change for traffic using the centre of the city, the greatest threat to the scheme's success was posed by the use of new technology. It worked and the scheme was widely seen as a success. 

Organizational change. Risks are triggered by, for example, new management structures or reporting lines, new strategies and commercial agreements.



Processes. New products, markets and acquisitions all cause change and can trigger risks. The disastrous launch of "New Coke" by Coca-Cola was an even bigger risk than anyone at the company had realized; its outraged Americans who felt angry that an iconic US product was being changed. That Coca-Cola eventually turned the situation to its advantage shows that risk can be managed and controlled, but such success is rare.



People. Hiring new employees, losing key people. poor succession planning, or weak people management can all create dislocation, but the main danger is behavior, everything from laziness to fraud, exhaustion and simple human error can trigger this risk.



External factors. Changes to regulation and political, economic or social developments can all affect strategic decisions by bringing to the surface risks that may have lain hidden. The economic disruption caused by the sudden spread of the SARS epidemic from China to the rest of Asia in 2003 highlights this risk.

2. What are the stages in managing the enterprise wide risk? (5)  First, assess and analyze the risks resulting from a decision by systematically identifying and quantifying them.  Second, consider how best to avoid or mitigate them.  Third, in parallel with the second stage, take action to manage control and monitor the risks.

3. What factors should be considered when setting and reviewing financial strategy? (10) • IMPROVING PROFITABILITY Entrepreneurial flair and financial rigor are as much about attitude as skill. A. Variance Analysis Variance analysis is used to monitor and manage the results of past decisions, assess the current situation and highlight solutions. Common causes of variances include inefficiency, poor or flawed planning poor communication, interdependence between departments and random factors. Every business should use variance analysis but in a practical and pragmatic and cost-effective way. B. Assessment of Market Entry and Exit Barriers When markets are difficult or costly for competitors to enter and relatively easy and affordable to leave, firms can achieve high, stable returns, while still being able to leave for other opportunities. Consider where the barriers to entry lie for your market sector, how vulnerable you are to new entrants, and whether you can strengthen and entrench your market position, C. Break-even Analysis The break-even point is when sales cover costs, where neither a profit nor a loss is made. It is calculated by dividing the costs of the project by the gross profit at specific dates, making sure to allow for overhead costs. Break-even analysis is used to decide whether to continue developing a product, alter the price, provide or adjust a discount, or change suppliers to reduce costs. It also helps in managing the sales mix, cost structure and production capacity, as well as in forecasting and budgeting. D. Controlling Costs To control costs: Focus on the big items of expenditure. Categories costs into major or peripheral items. Often, undue emphasis is given to the 80% of activities accounting for 20% of costs.  Be cost aware. Casualness is the enemy of cost control. While focusing on major items of expenditure it may also be possible cut the cost of peripheral items. Costs can be reduced over the medium to long term by managers' attitudes to cost control and the effects of expenses on cash flow.  Maintain a balance between costs and quality. Getting the best value means achieving a balance between the price paid and the quality received.  Use budgets for dynamic financial management. Budget early so financial requirements are known as soon as possible. Consider the best time-period for the budget normally a year but it depends on the type of business. Some larger firms have moved to rolling budgets, getting managers to forecast the next 18 months every quarter. Budgets provide a starting point for cash flow forecasts and revenues, and they also play an essential role in monitoring costs and revenues.



 

Develop a positive attitude to budgeting. People need to understand, accept and use the budget, feeling a sense of ownership and responsibility for developing, monitoring and controlling it. Eliminate waste. For decades, leading Japanese companies have directed much of their cost-management efforts towards waste elimination. They achieve this by using techniques such as process analysis, mapping and re-engineering.

Practical Techniques to Improve Profitability Some practical techniques to improve profitability: Focus decision-making on the most profitable areas. Concentrating on products and services with the best margin will protect or enhance profitability. This might involve redirecting sales and advertising activities.  Decide how to treat the least profitable products. These often drift, with dwindling profitability. Turn around a poor performer or abandon it to prevent drain on resources and reputation. The shelf-life and appeal of product must be considered deciding to continue or discontinue it.  Make sure new products enhance overall profitability. New product development often focuses on market need or the production process. with insufficient regard to cost, price, sales volume and overall profitability, which are inextricably linked.  Manage development and production decisions. The amount spent on research, as well as the priorities and methods used, affect profitability. Too little expenditure may increase costs in the long term. Set the buying policy.  Consider how to create greater value from existing customers and products to enhance profitability.  Consider how to increase profitability by managing people. Successful leadership is prerequisite for profitability. People need to be motivated and supported, and this implies rewarding them fairly for their work, training and developing them, providing clear sense of direction, and focusing on the needs of the team, the task and the individual. 

• AVOIDING PITFALLS Many managers have financial responsibilities and their decisions will often be influenced by or have an impact on other parts of the business. The following principles will help avoid flawed financial decision-making. Financial expertise must be widely available Every manager needs to understand why successful financial management increases profits people need to own their part of the financial control process, to have the information and expertise needed to routinely make the best financial decisions.

Consider the impact of financial decisions Do not ignore or underestimate the wider impact of finance issues upon other departments and decisions. Avoid weak budgetary control Budgets are an active tool to help make financial decisions, not merely a way to measure performance. Understand the impact of cash flow Non-financial managers often ignore cash flows and the time value of money. Everyone should be aware of the importance of cash to the organization. Know where the risk lies Identifying risks and how to reduce them is crucial to successful financial decision-making. For example, managers need to know not only where the break-even point is, but also how and when it will be reached. • REDUCE FINANCIAL RISK POSITIVE REPLIES TO THE FOLLOWING QUESTIONS WOULD ASSIST TOP MANAGEMENT TO MANAGE FINANCIAL RISK.  Are the most effective and relevant performance measures in place to monitor and assess the effectiveness of financial decisions?  Have you analyzed key business ratios recently? How useful are your performance indicators? What are the main issues? Are you measuring the right things?  Is there a positive attitude to budgets and budgeting?  Does decision-making focus on the most profitable products and services, or is it preoccupied with peripheral issues?  What are the least profitable parts of the organizations? How will they improve?  How efficiently is cash managed? Do your strategic business decisions take account of cash considerations, such as the time value of money?

4. What are some of the financial tools that can be applied in making strategic financial decision affecting profitability? (10)  



Marginal Analysis - Marginal analysis weighs the benefits of an input or activity against the costs. This type of analysis helps business leaders determine whether and activity or input is providing the maximum return-on-investment (ROI) SWOT Analysis - A SWOT Analysis can help you identify the forces that influence a strategy, action, or initiative. This information can then be used to guide you in the right direction and support your business decisions. Decision Matrix - When you are dealing with multiple choices and variables, a decision matrix can bring clarity to the disarray. A decision matrix is similar to a pros/cons list, but it allows you to place a level of importance on each factor. That way, you can more accurately weigh the different options against each other.



Pareto Analysis - The Pareto Principle helps in identifying changes that will be the most effective for your business A business can leverage the Pareto Principle by identifying the characteristics of the top 20% of their customers and finding more customers like them. When you can identify what small changes will make the largest impact, you are able to prioritize the decisions that have the highest level of influence 5. Enumerate and explain at least (2) practical technique to improve profitability (2)

 

Focus decision-making on the most profitable areas. Concentrating on products and services with the best margin will protect or enhance profitability. This might involve redirecting sales and advertising activities Consider how to increase profitability by managing people. Successful leadership is prerequisite for profitability. People need to be motivated and supported, and this implies rewarding them fairly for their work, training and developing them, providing clear sense of direction, and focusing on the needs of the team, the task and the individual. “Trust in the Lord with all your heart and lean not on your own understanding; in all your ways submit to him, and he will make your paths straight.” --- Proverbs 3:5-6 uphold e End of examination...