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Business Technology and Finance question bank 2019
Business Technology and Finance question bank 2019
BUSINESS,
TECHNOLOGY AND
FINANCE
Question Bank
www.icaew.com
Business, Technology and Finance
The Institute of Chartered Accountants in England and Wales
ISBN: 978-1-50971-995-2
Previous ISBN: 978-1-78363-711-9
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© ICAEW 2018
ii ICAEW 2019
Contents
The following questions are exam-standard. Unless told otherwise, these questions are the style,
content and format that you can expect in your exam.
Title Page
Questions Answers
1 Introduction to business 3 99
2 What are the primary objectives of profit-oriented and non-profit oriented organisations?
Profit-oriented organisation Non-profit oriented organisation
A Output of goods/services Minimise costs
B Output of goods/services Provision of goods/services
C Maximisation of wealth Minimise costs
D Maximisation of wealth Provision of goods/services LO 1a
3 At the Annual General Meeting (AGM) of Vortex plc, a major shareholder claimed that the
company was suffering from the symptoms of 'satisficing'. In the context of corporate
objectives, 'satisficing' means that:
A managers seek to make satisfactory profits rather than maximise wealth
B managers seek to keep all stakeholders satisfied
C owners seek to meet a satisfactory level of corporate responsibility obligations
D owners seek to make satisfactory profits LO 1a
4 Joe, the Managing Director of Gargoyle Ltd, has set a primary objective of growth in profits
for the company. He aims to concentrate on product development to support this objective.
Identify whether the following will be suitable secondary objectives to achieve the growth in
profits via product development.
1 Bringing in new products
2 Reducing labour turnover
3 Investing in research and development
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3 LO 1a
6 A major shareholder has stated that for three years the directors of Barrington plc have run
the company in a manner designed solely to increase their prestige in the business
community. According to William Baumol, this is most likely to be shown in the directors'
aim to:
A maximise wealth
B maximise sales revenue
C minimise costs
D minimise social impact LO 1a
8 The primary objective of ABC Car Rental Ltd is as follows: "We aim to be the fastest growing
company with the highest profit margin in the global vehicle rental and leasing business."
One of its secondary objectives is: "To increase our market share for global family car
rentals to 20% within three years."
Which three components of the SMART acronym are present in the company's secondary
objective?
A S
B M
C A
D R
E T LO 1a
11 Two of Sunshine Tours plc's stakeholder groups are putting the company under pressure to
improve its return on investment.
These are most likely to comprise which two of the following groups?
A Shareholders
B Customers
C Bankers
D Suppliers
E Employees LO 1a, 6e
12 Cruciform is a charity providing medical services in South America. The Chief Executive is
preparing a brochure which outlines the services provided by the charity. In the brochure,
the Chief Executive states that the charity wants to be the largest global provider of
charitable medical services by 20X5. By highlighting this, the Chief Executive is stressing the
charity's:
A vision
B mission
C primary objective
D secondary objective LO 1a, 1b
14 Mandrake plc processes waste for local authorities. It has stated that it seeks to provide "our
shareholders with increased value, our customers with value for money, our employees with
secure and interesting jobs and the public with safe and sustainable waste disposal."
This is analysed below into four statements. Identify which is Mandrake plc's primary
business objective.
A To provide our shareholders with increased value
B To provide our customers with value for money
C To provide our employees with secure and interesting jobs
D To provide the public with safe and environmentally sustainable waste disposal LO 1a
15 The ability to meet the needs of the present without compromising the ability of future
generations to meet their own needs is known as:
A corporate responsibility
B sustainability
C business ethics
D natural capital LO 5g
16 Sustainability is about the long term use of both tangible and intangible resources. Green
plc manufactures customised furniture for customers from recycled materials.
Which two of the following represent intangible resources of Green plc?
A The design expertise of its employees
B Stationery supplies to the factory office
C Recycled timber received from suppliers
D Its reputation in the community
E Its head office premises LO 5g
18 At its recent AGM, the shareholders of Boron plc voted by a small majority to accept a small
dividend. At the meeting many shareholders said that they accepted the dividend because
the company's profits were low, but were very unhappy with the return because the
company's financial statements showed a large increase in revenue.
Which of the following describes what is most likely to be happening at Boron plc?
A Revenue maximising
B Profit satisficing
C Profit maximising
D Revenue satisficing LO 1a, 1b
2 Amanda is a Regional Lending Manager with a major international bank. She has the
authority to lend up to £1 million on an unsecured basis to any single corporate customer
without reference to the bank's head office. What sort of power does Amanda have?
A Referent power
B Expert power
C Legitimate power
D Reward power LO 1d
3 Cerise can authorise her own travel expenses up to £1,000. Cerise will soon travel abroad
on business, and she has a choice between flying economy class for £350 or flying business
class for £1,050. Cerise is an old friend of the company's travel administrator, Malcolm, who
arranges bookings. She persuades him to book the business class seat. This is an example
of Cerise exercising:
A authority without power
B power without authority
C delegation of authority
D power with authority LO 1d
4 Michael is a Senior Manager working for Chirac plc. He decides to delegate completion of
an internal report to one of his subordinates. In doing this, Michael is transferring to the
subordinate:
A authority, responsibility and power
B authority, accountability and power
C responsibility and authority
D power, responsibility and accountability LO 1d
7 Andrew is a Manager in Fortwarren plc. He has to re-arrange a staff rota after a staff
member fell ill. According to Henry Mintzberg, this forms part of Andrew's:
A decisional role
B interpersonal role
C disseminator role
D informational role LO 1d
8 Charlize is a Manager at Tordos Ltd. She complains to a friend that all she does is attend
meetings along with other managers in the company, and represent her team at
conferences. In terms of Henry Mintzberg's managerial roles, Charlize is describing her:
A decisional role
B interpersonal role
C disseminator role
D informational role LO 1d
10 A management consultant has identified that Samp plc's organisational culture is outward-
looking but controlling. Samp plc is, therefore:
A an internal process culture
B a rational goal culture
C an open systems culture
D a human relations culture LO 1d
11 Malcolm is a Marketing Manager with Stone plc. The Marketing Director has primary
responsibility for the company's overall marketing strategies, but Malcolm has day-to-day
responsibility for all aspects of the company's marketing mix. This means that Malcolm will
be responsible for:
A a set of variables that he manages in order to achieve a desired response from the
company's various target markets
B budgets setting out the volumes to be sold to the company's various target markets
C the sets of different features and benefits that are present in the company's range of
products
D the types of advertising used by a firm to reach and influence its various target markets
LO 1c
12 Pemble Ltd emphasises its adoption of the marketing orientation. Which of the following
statements is most likely to be made by Elaine Pemble, its Managing Director?
A Rather than focusing on product development, we offer discounts on our current lines
to increase sales.
B We increase sales by spending money on development of products our customers
want.
C We put all our effort into persuading customers to buy our products as our sales
targets are of paramount importance.
D We aim to increase sales by spending to develop products we think are innovative.
LO 1c
14 In terms of the organisational iceberg, which three of the following are classified as covert
variables affecting organisational behaviour in a company?
A Formal goals
B Attitudes
C Underlying competencies and skills
D Organisation design
E Communication patterns LO 1d
15 Hamid is the managing director of Welldean Ltd, a small company selling aromatherapy
products. He has read about the benefits of market segmentation with regard to both
competitive strategy and resource allocation. Adoption of market segmentation by
Welldean Ltd would mean that:
A the company would sell to only one section of the market
B the market is broken down into several different sections
C the company sees the aromatherapy market as homogeneous
D the competitive scope of the company would be narrow LO 1c
16 Karen is a General Manager with Websellers Ltd. The company is restructuring. Karen is
trying to persuade the Managing Director to set up a separate marketing department within
the new structure. Which of the following statements that she has made is true?
A Marketing is the principal function of the company.
B All the different business functions should blend to achieve customer satisfaction.
C A company cannot practise marketing without a marketing department.
D 'Advertising' is synonymous with 'marketing'. LO 1c
17 Manton plc has decided to support the launch of its latest product by means of a major
television advertising campaign. This is an example of:
A pull promotion
B push promotion
C a combination of pull and push promotion
D personal selling LO 1c
19 Lynnette is a Manager with Grin plc. Her staff all agree that she adopts a Theory X style of
management. Which of the following statements reflects her assumptions?
1 People must be threatened with punishment if the organisation is to meet its objectives.
2 The average person avoids responsibility.
3 The intellectual potential of the average person is only partially utilised.
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3 LO 1d
20 Three factors affect the motivation of employees in Ramble plc's accounting department:
1 Working conditions
2 Each employee's relationship with Reeta, the Manager
3 Challenging work
Reeta wants to classify the factors according to Frederick Herzberg's theory of hygiene
factors and motivating factors. Which of the factors are hygiene factors?
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3 LO 1d
21 The process of dividing a market into homogeneous groups of potential customers who
may be treated similarly for marketing purposes is called:
A market research
B marketing orientation
C marketing mix
D market segmentation LO 1d
24 Harris plc has capital-intensive operations, with specialisation of work and well-established
systems. Each month its operations manager is required to produce more items than in
previous periods. Using the four Vs model, Harris plc's operations manager is expected to
manage:
A high volume and high unit costs
B high volume and low unit costs
C low volume and low unit costs
D low volume and high unit costs LO 1d
25 Research into products which have obvious commercial or practical use is called:
A market research
B pure research
C applied research
D process research LO 1d
28 The HD5000 is a state of the art TV and audio system. The makers of the HD5000 have
decided against advertising the system and instead the marketing team has focussed its
efforts on negotiating with shops and online retailers to stock the product, by persuading
them that consumers would be attracted to their store if they sold it.
Which of the following techniques is the marketing team using?
A Pull marketing technique
B Digital marketing technique
C Push marketing technique
D Direct marketing technique LO 1c, 1d
29 Humberts is a restaurant that specialises in Mediterranean cuisine with a modern style. It has
recently employed Juan, a marketing consultant, to review the service customers receive
when they have a meal.
Which three aspects of the marketing mix will Juan consider when reviewing the
restaurant's service to customers?
A Place
B People
C Promotion
D Price
E Processes
F Product
G Physical evidence LO 1c, 1d
2 Lan plc trains bankers. It has been established for over 30 years. Lan plc has a large
operating core which consists of all the well-qualified lecturing staff. They need to keep
their teaching material constantly updated to reflect current issues in the complex banking
industry, and to ensure that the company's courses remain competitive. The lecturers are
supported by a large administrative team which follows procedures to ensure the smooth
delivery of courses. Which of the following organisational structures does Lan plc have?
A Entrepreneurial
B Machine bureaucracy
C Professional bureaucracy
D Divisionalised LO 2b
3 Identify which three of the following are Henry Mintzberg's building blocks of an
organisation.
A Support staff
B Middle line
C Functional division
D Scalar chain
E Ideology
F Matrix structure LO 1d, 2b
4 Jane's job description at Glue Pot plc states that her role is part of the company's
technostructure. According to Henry Mintzberg, a technostructure:
A ensures that an organisation follows its mission
B provides ancillary services
C standardises work processes
D controls the work of the operating core LO 1d, 2b
6 Amy has just joined the finance function of a local hospital. She identifies that its managers
belong to the 'classical school' because of their adherence to the concept of unity of
command. This means that in general the managers believe that:
A a subordinate should receive orders from only one manager
B there should be only one manager of each activity
C authority should flow down a single chain of command
D work should be specialised into single tasks LO 1d, 2b
7 Justin works for Edwinstone plc. He is part of a project team developing a large
construction site. The team has a matrix structure with employees from many different
departments working on this project.
Which of the following management principles set out by Henri Fayol is necessarily
contravened by this type of structure?
A Authority and responsibility
B Subordination of individual interests
C Unity of command
D Esprit de corps LO 1d, 2b
8 The Chief Executive of Acton plc has identified problems caused by the centralised nature
of the company's decision-making processes. These have led to accusations from staff and
some customers that the company is increasingly slow and unresponsive. The Chief
Executive wants to increase the amount of decentralised decision-making over the next
year.
Which three of the following characteristics of Acton plc are likely to increase the amount of
decentralisation that is possible?
A The authoritarian style of its management
B Its well-skilled workforce
C Its large size
D The slow pace of technological change in its markets
E The effectiveness of communication across the company LO 1d, 2b
11 Logical Computing Ltd adopts a wide, flat organisational structure. Which of the following is
likely to present problems for the company?
A Ensuring enough face-to-face contact takes place between superiors and staff
members
B High management overhead costs
C Internal communication
D Superiors not delegating enough work to staff LO 1d, 2b
15 TinTin Ltd is facing a period of rapid change and innovation in its operating markets.
According to Tom Burns and G M Stalker, which three of the following should the company
adopt in order to be effective in its environment?
A A Theory X management style
B A Theory Y management style
C A wide, flat organisational structure
D A tall, narrow organisational structure
E Extensive use of delegation
F Limited use of delegation LO 1d, 2b
17 Which of the following business structures necessarily has a legal identity separate from that
of its owner(s)?
A A joint venture between two limited liability companies
B A general partnership
C A limited liability partnership
D A strategic alliance LO 2a
18 Angela is a Sole Trader who currently employs one person. Her business, Markstat,
performs statistical analysis for market research companies. Workloads are increasing
rapidly and Angela has realised that she now needs to employ three more people. This will
require new office premises plus new furniture and equipment. Markstat operates in a
highly competitive sector.
Identify which two of the following factors are disadvantages of Markstat's current business
structure in this context.
A A floating charge cannot be used to secure borrowing
B Angela's liability is unlimited
C The business's liability is unlimited
D Financial statements do not have to be filed with the Registrar of Companies
E The stringent legal rules that apply to the business's constitution LO 2a
19 Romulus Ltd and Remus Ltd have recently agreed to cooperate to exploit the possibilities
that both companies have in a particular overseas market. No separate company has been
established for this purpose because the companies' Chief Executives, who have known
each other for many years, have agreed matters informally. This arrangement is an example
of a:
A licensing agreement
B joint venture
C strategic alliance
D group structure LO 2a
21 Which of the following business structures necessarily have a legal identity separate from
that of its owner(s)?
1 A strategic alliance between a limited company and a limited liability partnership
2 A limited liability partnership
3 A registered company
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3 LO 2b
22 Mr Dafinone is a Sole Trader who works alone, maintaining and repairing IT systems. He
works 60 hours per week. He wants to take on a major new maintenance and repair contract
for a local hospital's operating theatre. This will require at least 60 working hours each
week. It will be extremely profitable if he can acquire the necessary equipment.
Which of the following statements about his sole trader status is true?
A It prevents him from employing staff to help with the contract.
B It gives him personal liability for any failure of his in relation to the hospital IT system.
C It prevents him from obtaining a loan to obtain the equipment.
D It allows him to issue shares in his business to friends and family. LO 2a
24 Jacinta works in the Human Resources department of Huff plc. She is preparing a job
description for a new vacancy for an accounts payable assistant in the finance function.
Which three of the following items would be included in the job description that Jacinta is
preparing?
A Duties and responsibilities of the role
B Job title
C Organisation chart showing all positions within Huff plc
D Huff plc's health and safety policy
E Pay grade LO 1d
25 Aiysha works in a factory that makes televisions. Her manager, Delia, sets a target for how
many televisions the team needs to assemble per week. These targets flow from Delia's
own objectives which are set by the directors.
Which part of the organisation does Aiysha work for?
A The middle line
B The strategic apex
C The technostructure
D The operating core LO 1c, 2a
26 The organisational structure for Grenestede Ltd is flat compared to many businesses. There
are only three levels in its hierarchy, directors, managers and workers.
Which of the following is an advantage of this type of organisational structure to
Grenestede Ltd?
A Greater opportunity to delegate
B Narrower spans of control
C More participation in decision making
D Improved management training LO 2a
2 Nevin works for Dorchester plc. Nevin's manager has asked him to undertake an internal
analysis of the company as part of a strategic planning review.
Which three of the following analytical techniques will be useful in this context?
A Value chain analysis
B Porter's five forces analysis
C The BCG Matrix
D PESTEL analysis
E Analysis of distinctive competencies
F Ansoff's Matrix LO 1b
3 Sharma is carrying out a PESTEL analysis for her employer, Decron plc. During her research
Sharma has realised the ageing of the UK's population is a potentially important strategic
issue for the company. In which section of her analysis should Sharma record this matter?
A P
B S
C T
D L LO 1b
4 The Marketing Director of Birstall plc is formulating whether one of the company's
products, which is aimed at a small niche market, should be differentiated from its close
competitors. At this stage she is unsure how such differentiation would be achieved in
practice. The decision on whether to differentiate or not is a decision concerning the
company's:
A functional strategy
B business strategy
C competitive strategy
D product/market strategy LO 1e
6 With regard to Porter's Five Forces Analysis and new entrants into a market, which of the
following pairs of statements is correct?
7 In the past a major stakeholder in Justin plc has exerted considerable influence over the
environmental impact of the company's manufacturing operations. Specifically, a
production facility was temporarily closed down for three weeks as a result of one recent
campaign orchestrated by this stakeholder. The stakeholder writes regularly to the
company's chairman about a range of environmental issues involving the company.
In terms of Mendelow's matrix which of the following strategies should Justin plc pursue for
this stakeholder?
A Keep this stakeholder informed at all times about the company
B Keep this stakeholder satisfied with regard to the company and its strategies
C Take minimum effort with regard to this stakeholder as he always complains
D Treat this stakeholder as a key player when formulating future strategies LO 1b, 6e
8 Seago plc provides exclusive scuba-diving holidays for people over 60 years of age. In
terms of Michael Porter's generic competitive strategies, this represents a strategy of:
A differentiation
B cost leadership
C cost focus
D differentiation focus LO 1c, 1d, 1e
10 Nextron plc manufactures washing machines. It has a 20% share of the UK market. The
company wants to increase its revenues so has decided to add tumble dryers to its range of
products. In terms of Ansoff's matrix, this represents a growth strategy of:
A market penetration
B market development
C product development
D diversification LO 1b, 1c, 1d
11 The board of directors of Swinson plc is evaluating whether to pursue a new strategic
option for a major strategic business unit. The final decision should be judged against
which three of the following criteria?
A A cost of entry test
B An acceptability test
C A suitability test
D A feasibility test
E An attractiveness test
F A payoffs test LO 1b
12 Arto plc manufactures the Zulon. The Zulon's dominant market share has continued for over
five years, but market growth has now almost ceased. Zulon's product manager does not
believe that the product merits further significant financial support. In terms of the BCG
matrix, which of the following strategies should the product manager recommend?
A Hold
B Harvest
C Divest
D Build LO 1b, 1e
14 Millward Ltd sells garden sheds. It has a number of local competitors who regularly use
price cuts and other sales promotions to win business. Its competitors have noticed that
Millward Ltd responds to price cuts by matching prices and then launching a leafleting
campaign to houses in the local area. In terms of Philip Kotler's competitor reaction profiles,
Millward Ltd is:
A laid back
B a tiger
C selective
D stochastic LO 1b, 1c, 1d
15 Manson Ltd aims to pursue a differentiation strategy for its Portex sliding-door product.
Which three of the following will form part of this strategy?
A Action to minimise labour and overhead costs
B Action to improve productivity
C Improved product features and benefits
D Promotion of the Portex brand
E Use of higher quality materials in the manufacturing process LO 1b, 1e
16 Glenway Ltd sells package holidays from a chain of retail outlets. Brantham Ltd sells new
and used cars from a chain of car dealerships. Glenway Ltd and Brantham Ltd are:
A brand competitors
B industry competitors
C generic competitors
D form competitors LO 1b, 1c, 1d
18 A consultant has told Nag plc's board that the strategic planning process should result in a
strategic plan, a business plan and an operational plan. The consultant gave the board two
definitions.
Definition 1 A business plan sets out the markets the business intends to serve, how it will
serve each market and what finance is required
Definition 2 A strategic plan sets out how overall objectives are to be achieved, by
specifying what is expected from specific functions, stores and departments
Are these definitions accurate or inaccurate?
Definition 1 Definition 2
A Accurate Inaccurate
B Inaccurate Inaccurate
C Accurate Accurate
D Inaccurate Accurate LO 1f
19 Simian plc operates in the financial services sector. Its marketing director is developing the
firm's marketing plan. An external marketing consultant has recommended that the PESTEL
framework should be used as part of this process.
Which of the following statements correctly describes the reason why the PESTEL
framework might prove useful?
A It will identify Simian plc's strengths and weaknesses
B It will allow a detailed analysis of the structure of the financial services industry
C It will act as a detailed checklist to assist in understanding the different influences in
Simian plc's environment
D It will help to identify the relative levels of interest and power of Simian plc's
stakeholders LO 1b
21 The specialist services division of Klaxon plc uses highly-qualified professional staff to
provide its government-accredited service to its customers. The company has prepared a
draft Five Forces Analysis.
The following two statements are included in the draft analysis:
Statement (1) Government subsidies for existing providers will be removed, so there will
be increased rivalry
Statement (2) Two key customers of the specialist service will merge, so there will be
increased rivalry
22 The board of directors of Waterfall plc, a highly geared construction company, is evaluating
whether to invest in the building of a new reservoir. This would represent a new strategic
direction for Waterfall plc.
Which of the following features of this strategic decision would indicate that it may not be
feasible?
A The investment carries a high level of risk for Waterfall plc
B The new reservoir is not expected to increase shareholder wealth in the short term
C Waterfall plc has access to funds of £23 million but the reservoir will cost £40 million
D The environmental impact of the new reservoir has been criticised by local community
groups LO 1b
24 Simone, the strategy director of Principle plc recently undertook a review of a number of
the company's product lines using the BCG matrix to develop recommendations. For one
particular product, ZD737, the model recommended that a 'harvest' or a 'hold' strategy
should be adopted.
Which of the following did the BCG matrix classify the ZD737 as?
A A dog
B A question mark
C A cash cow
D A star LO 1b, 1e
2 A highly-geared company's financial risk is most likely to increase when it increases its:
A operations
B geographical reach
C borrowings
D share capital LO 1h, 1i
3 The strategy director of Milton plc is assessing a project that he may recommend to the
board of directors. He is concerned about the risk-averse attitude of the board to similar
projects in the past. In terms of risk, risk aversion is a measurement of:
A the probability of risk arising
B project uncertainty
C the impact of risk
D appetite for risk LO 1h, 1i
4 The following statements have been made in relation to risk and uncertainty.
Statement (1) Risk is the variation in an outcome.
Statement (2) Uncertainty denotes the inability to predict an outcome.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 1h, 1i
7 Jenny is a Risk Manager at Fortune Ltd. She is investigating the potential gross risk arising
from a decision to incorporate lower quality materials into the production process for one
of the company's key products. In assessing potential gross risk Jenny needs to take
account of the:
A level of exposure and probability of occurrence
B potential loss and probability of occurrence
C potential loss and level of volatility
D level of exposure and level of volatility LO 1h, 1i
8 Smertin and Jones is a firm providing advice on all aspects of personal finance. Their
industry is heavily regulated. A newspaper article predicts that private medical insurance, a
further area of the firm's business, may become subject to new regulatory requirements
from next year. This possibility is an example of:
A business risk
B financial risk
C event risk
D market risk LO 1h, 1i
Risk
+ Investment 1
+ Investment 2
+ Investment 3
+ Investment 4
Return
A Investments 2 and 4
B Investments 1 and 4
C Investments 2 and 3
D Investments 3 and 4 LO 1h, 1i
11 Which of the following is the best definition of the risk concept of 'exposure'?
A How the factor to which a company is exposed is likely to alter
B The amount of the loss if the undesired outcome occurs
C The measure of the way in which a business is faced by risks
D The likelihood that the undesirable outcome occurs LO 1h, 1i
13 Briggs plc analysed a risk faced by its Scarborough division on a risk map. It concluded that
the matter has a low impact but there is a high probability of its occurrence. Which of the
following risk responses is most appropriate?
A Risk avoidance
B Risk reduction
C Risk transfer
D Risk acceptance LO 1h, 1i
15 Grenville Ltd is renewing its buildings and contents insurance policy for its factories. In
terms of risk management, this is an example of:
A risk avoidance
B risk reduction
C risk transfer
D risk retention LO 1h, 1i
16 What type of risk includes process risk, people risk and event risk?
A Operational risk
B Financial risk
C Business risk
D Strategy risk LO 1h, 1i
19 Matrix Ltd has recently failed to supply raw materials in line with the terms of its contract
with Banfield plc. As a result, Banfield plc has had to delay the delivery of products to a
major customer. For Banfield plc, the failure of Matrix Ltd to meet its contractual obligations
is an example of:
A financial risk
B product risk
C business risk
D event risk LO 1h, 1i
20 In which order should the following aspects of the risk management process take place?
1 Risk response and control
2 Risk analysis and measurement
3 Risk awareness and identification
4 Risk monitoring and reporting
A 1, 2, 4, 3
B 3, 2, 1, 4
C 2, 3, 1, 4
D 4, 2, 1, 3 LO 1h, 1i
22 Which of the following risks faced by Lump plc should be classified as business risk?
A Product risk
B Event risk
C Process risk
D Financial risk LO 1h, 1i
23 Which type of cyber attack involves criminals recording what a user types onto their
keyboard?
A Phishing
B Keylogging
C Ad clicker
D Screenshot manager LO 7c
24 Amos Green, the financial controller of Little Ltd, recently received an email that appeared
to be from the company's bank. It instructed Amos to click on a link and confirm some of
the company's security information. Just days later, Amos noticed that money had been
transferred unexpectedly out of Little Ltd's bank account.
Of which of the following cyber attacks is Little Ltd a victim?
A File hijacking
B Webcam manager
C Phishing
D Keylogging LO 7c
25 Distributed denial of service (DDoS) attacks are used to bring down a business' website by
overwhelming it with a wave of internet traffic.
Which of the following are used to create the wave of internet traffic in such an attack?
A Netbots
B Netdrops
C Botdrops
D Botnets LO 7c
28 A cyber security consultant has listed the following actions that a small to medium-sized
business can take to reduce the risk of cyber attack:
Action 1 Implement access controls
Action 2 Install internet gateways
Action 3 Use patch management software
Which of these actions are included in the UK government's Cyber Essentials scheme?
A Actions 1 and 2 only
B Actions 2 and 3 only
C Actions 1 and 3 only
D Actions 1, 2 and 3 LO 7c
29 Hammer plc makes a range of agricultural machines and other agricultural equipment for
sale in its home market. Hammer plc has a large share of this market, but it has several
competitors who sell similar machinery.
Which of the following would normally be classified as an operational risk for Hammer plc?
A The risk that the Production Director will be recruited by Tiller plc, a key competitor
B The risk that a new type of irrigation system will fail to find a large enough market
C The risk of competitors moving their production overseas and being able to cut costs
D The risk of resource depletion, meaning that new sources of metal will have to be found
LO 1h, 1i
31 Greenwood Ltd is a wholesaler of coffee. The business has contracts with all the major
coffee chains to supply coffee beans and fixes the price it charges them every month.
Greenwood Ltd buys the coffee beans on the international coffee market for which it pays
the market price on the day of purchase.
The process of buying and selling coffee beans presents which of the following risks to
Greenwood Ltd?
A Credit risk
B Strategy risk
C Product risk
D Market risk LO 1h, 1i
3 The directors of Royguard plc have recently decided to establish an extensive management
information system within one of its subsidiaries. In arriving at this decision, the directors
were likely to have been conscious that the subsidiary's operations were largely
characterised by:
A structured decisions
B unstructured decisions
C non-programmable decisions
D non-routine decisions LO 3d
4 The information systems manager of Detrex plc wants all data input into the company's
databases to be complete and accurate. As part of his information management role, he
makes use of range checks. The use of range checks should help to deliver:
A completeness only
B accuracy only
C both accuracy and completeness
D neither accuracy nor completeness LO 3d
6 Ranger plc's information systems manager wants all data on the company's databases to be
the same as their sources and not to have been accidentally or deliberately altered,
destroyed or disclosed. His concern, therefore, is with:
A data accuracy
B data integrity
C data authenticity
D data completeness LO 3d
7 Zing plc's information system automatically maintains a log of user activity. This log contains
details of identity, log-on and log-off times and details of processing carried out and access
attempts made. All transactions are tagged to identify the person responsible for that
processing. The log-on details of the user determine processing access.
Which three of the following control objectives does this system effectively address?
A Prevention
B Detection
C Deterrence
D Correction
E Accuracy
F Completeness LO 3d
11 A company correctly records and analyses all its sales transactions. At the end of each
month, a report is produced for the sales director listing details of every sales transaction:
customer, products, quantities and prices. Which of the following describes the quality of
the report's data and information?
A Good quality of data, but poor quality of information
B Good quality of both data and information
C Poor quality of data, but good quality of information
D Poor quality of both data and information LO 3a, 3d
12 An information system that fails to collect information from its environment will be ignoring
information about which three of the following?
A Its transactions
B Its budgets
C Competitor action
D Legislation
E Its share price
F Its mission LO 3a, 3d
14 Arkwright Ltd analyses huge quantities of data about a wide variety of issues from a wide
variety of sources. Arkwright Ltd is seeking competitive advantage from:
A its transaction processing system
B big data
C cybersecurity
D its strategic planning process LO 3a, 3d
15 The depreciation policies adopted by Plumtree Ltd have not changed for the past five
years. According to the IASB's Conceptual Framework for Financial Reporting, this supports
the qualitative characteristic for its financial information of:
A understandability
B relevance
C timeliness
D comparability LO 3a
16 The IASB's Conceptual Framework for Financial Reporting states that financial information is
useful when it both influences the decisions of users of the information and:
A is produced in a timely fashion
B is complete and accurate
C establishes management accountability
D is produced in a cost-beneficial way LO 3a
17 As a result of reading the financial statements of Tatra plc, Michaela decided to increase her
shareholding in the company. In terms of the IASB's Conceptual Framework for Financial
Reporting, this confirms that the information in Tatra plc's financial statements was:
A positive
B timely
C material
D relevant LO 3a
19 Each month the Business School at Newtown University receives financial performance data
for the previous month. Each month the senior managers of the Business School complain
that they cannot rely on this information as it contains errors. The information, therefore, is
often ignored by managers. In terms of the qualities of a secure information system, the
actions of the managers show that the system lacks the quality of:
A confidentiality
B availability
C non-repudiation
D authorisation LO 3d
20 The chief executive of Table plc is not convinced about the usefulness of much of the
information in the company's financial statements. He makes three statements about the
specific characteristics of the information that he believes may undermine its usefulness.
Statement (1) It lacks timeliness
Statement (2) A high level of regulation applies to it
Statement (3) It contains a high level of aggregation
Which of these statements identify characteristics that are likely to undermine the
information's usefulness?
A Statements (1) and (2) only
B Statements (2) and (3) only
C Statements (1) and (3) only
D Statements (1), (2) and (3) LO 3a
21 Which of the following issues are key in relation to information processing in a company's
accounting systems?
Issue 1 Completeness
Issue 2 Non-repudiation
Issue 3 Verifiability
A Issues 1 and 2 only
B Issues 2 and 3 only
C Issues 1 and 3 only
D Issues 1, 2 and 3 LO 3a, 3d
23 The IASB's Conceptual Framework for Financial Reporting states that, to support the
effective working of capital markets for the benefit of businesses, financial statements must
have which two fundamental qualitative characteristics?
A Understandability
B Relevance
C Faithfulness of representation
D Comparability
E Timeliness
F Verifiability LO 3a
24 Russell is an accountant working for Forsell plc. He has made the following points
concerning financial statements. Which of Russell's points is true?
A Financial statements are used mainly by management
B Financial statements are used by parties internal to the business only
C Financial statements are used only by investors
D Financial statements are used by investors, payables (creditors) and management
LO 3a, 4b
25 The characteristic that determines whether information is both of good quality and valuable
is:
A accuracy
B accessibility
C timeliness
D relevance LO 3a
28 The ability to stream big data into an organisation's systems in real time is an example of
which feature of big data?
A Volume
B Veracity
C Velocity
D Variety LO 7a
29 Which of the following features of big data concerns the fact that data sets contain
anomalies and errors?
A Veracity
B Variety
C Volume
D Velocity LO 7a
30 Which three of the following are ways in which data analytics of big data can create value
for a business?
A Risk management
B Innovation
C Development of corporate mission
D Change management
E Performance improvement
F Creation of HR policies LO 7b
32 Which of the following is a disadvantage for a small business of using cloud accounting?
A It is expensive, difficult and time-consuming for the business to upgrade cloud
accounting software
B Only one person in the business can have access to the cloud accounting software at
any one time
C Accounting data has to be moved from computer to computer manually by the
business's finance function employees
D The small business relies completely on the security and backup measures of the
provider of the cloud accounting software LO 7d
33 Priya is investigating the use of cloud accounting for her employer, Withit plc. She has
discovered that accounting information stored in the cloud can be added to or accessed
from anywhere, using any device with an internet connection. She is making a
recommendation to her managers on the use of cloud accounting which contains the
following statements.
Statement (1) With the adoption of cloud accounting, Withit's project managers at client
sites can check whether a payment has been received.
Statement (2) With the adoption of cloud accounting, accounts staff will have the ability
to work from home.
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate LO 7d
34 Big Data analytics typically involves the analysis of unstructured data. Which of the following
is an example of unstructured data for a company that operates a chain of coffee shops?
A Spreadsheet analysis of the purchase of new chairs for store refurbishments
B Data tables showing monthly sales figures at each store
C A table of supplier names and addresses
D Email communications between a customer and the marketing department LO 7a
36 Modern businesses may create digital assets and earn revenue by licensing other
organisations to use them.
Statement (1) Watermarks can be used to protect the security of digital assets.
Statement (2) Once a user has obtained a licence to use a digital asset they are free to
use or distribute the asset as they wish.
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate LO 7d
37 Finax plc is a credit referencing organisation. It collects data on the credit transactions of
millions of people and commercial organisations worldwide. Vertex Ltd has an arrangement
with Finax plc to access its store of big data so that it can make decisions on whether to
extend credit to new customers.
Which type of big data does Finax plc supply?
A Created big data
B Provoked big data
C Transacted big data
D Compiled big data LO 7a
39 A system that allows people who do not know each other to trust a shared record of events
is an example of which type of technology?
A Distributed ledger
B Cloud computing
C Internet of things
D Data analytics LO 7d
40 Tech Ltd has invented a device that allows the temperature controller of the user's home to
be adjusted automatically by an app on their smartphone, using data about the weather.
Of which of the following types of technology is this an example?
A Distributed ledger
B Cloud computing
C Internet of things
D Data analytics LO 7d
2 Collinson plc is a medium-sized group operating at four locations in the UK. It operates a
centralised finance function and is concerned that the function as a whole is not performing
well. Centralisation of this finance function is least likely to be effective in:
A external reporting to shareholders
B recording financial transactions
C managing cash
D internal reporting to operational managers LO 3b, 3c
3 Maureen is employed in the finance function of Gralam plc. Her duties are to ensure that
the company always has sufficient funds available to meet both its short-term and long-term
financial requirements. It is clear that Maureen is employed by Gralam plc in its:
A financial reporting section
B management accounting section
C treasury management section
D transaction processing section LO 3c
6 Novel plc is establishing its accounting and finance function. The company has been told
there are two purposes of published, audited financial statements. These are to help users
assess how effectively managers are running a business, and to make judgements about the
likely levels of risk and return in the future.
Which of the following user groups of Novel plc's published, audited financial statements is
most likely to use accounting information for these purposes?
A Community representatives
B Employees
C Shareholders
D Managers LO 3a
7 When a company's finance function prepares financial statements in accordance with legal
rules and accounting standards, it is engaged in the support activity of:
A record-keeping and stewardship
B planning and control
C external reporting
D internal reporting LO 3c
8 Mainstream Ltd's finance director is establishing an effective system in the finance function
for producing management accounting reports. Which issue should be the finance
director's primary consideration?
A The information needs of the company's managers
B The need for effective internal control mechanisms
C The need for cost-effectiveness
D The need for effective information security LO 3c
10 The finance director of Boiled Sweets plc wants to specify the levels of performance that
underpin the company's control system.
Which three of the following are the main components of the company's control system?
A Measurement of actual performance and comparison against targets
B Identification of deviations from the plan
C Establishment of standards or targets to express planned performance
D Follow-up action to correct adverse results or to exploit favourable variances
E Measurement of ideal performance
F Devising the plan LO 1g, 3b
11 'Effectiveness', 'economy' and 'efficiency' are often mentioned with reference to resource
use. Match these terms with the definitions below:
1 A reduction or containment of costs
2 Achieving maximum output at minimum cost
3 The measure of achievement by reference to objectives
A 1 = effectiveness 2 = economy 3 = efficiency
B 1 = economy 2 = efficiency 3 = effectiveness
C 1 = efficiency 2 = effectiveness 3 = economy
D 1 = economy 2 = effectiveness 3 = efficiency LO 3e
12 Which statement about critical success factors (CSFs) for a business is true?
A Low costs will always be a CSF; high sales revenue will always be a CSF.
B Low costs will always be a CSF; high sales revenue will not always be a CSF.
C Low costs will not always be a CSF; high sales revenue will always be a CSF.
D Low costs will not always be a CSF; high sales revenue will not always be a CSF.
LO 1a, 3b, 3e
14 A consultant has made two statements about the primary focus of the users of financial
statements of an entity.
Statement (1) The primary focus of suppliers is on the entity's risk and return.
Statement (2) The primary focus of shareholders is on the entity's solvency.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 3a, 3e, 3f
16 Which three of the following are components of the COSO internal control framework?
A Information and communication
B Control environment
C Internal audit
D Project management
E Monitoring activities LO 3c
18 GoodGreen plc prides itself on the environmentally friendly nature of its operations. It
applies the triple bottom line approach to the reporting of its performance.
Statement (1) The social aspect of the triple bottom line measures issues such as diversity
and equality in respect of the company's workers.
Statement (2) The economic aspect to the triple bottom line measures issues such as the
eradication of bribery, fraud and money laundering.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 3e
19 Chinward Ltd manufactures garden furniture from recycled wood and wishes to apply the
sustainability reporting standards issued by the Global Reporting Initiative (GRI) in its
sustainability reporting.
Statement (1) Under the environmental section of the report, the company should identify
the total weight of wood used in the manufacture of its products in the
financial period.
Statement (2) Under the social section of the report, the company should identify the
number of new workers employed in the financial period by age, gender
and region.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 3e
2 A consultant has made the following statements concerning each possible relationship
between a bank and its customer.
Statement (1) In the fiduciary relationship the bank is expected to act with good faith
towards the customer.
Statement (2) In the mortgagor/mortgagee relationship the bank asks the customer to
secure a loan with a charge over the customer's liabilities.
Statement (3) In the bailor/bailee relationship the bank accepts the customer's property
for storage and undertakes to take reasonable care to safeguard it against
loss or damage.
Identify which of the statements about these relationships are true.
A Statements (1) and (2) only
B Statements (2) and (3) only
C Statements (1) and (3) only
D Statements (1), (2) and (3) LO 3g
3 The directors at Landsaver plc want to raise long-term finance by issuing shares in the
company. They have been told that the way to do this is 'by accessing the market' but they
are not sure what this means. A market where new securities are bought and sold for the
first time is known as:
A a futures market
B a secondary capital market
C a primary capital market
D a money market LO 3h
5 Any person who brings together providers and users of finance, whether as broker or
principal, is known as:
A a business angel
B a venture capitalist
C a merchant banker
D a financial intermediary LO 3h, 3i
9 Which of the following forms of new share issues would normally be underwritten?
A Introduction
B Offer for sale by tender
C Placing
D Rights issue LO 3i
10 Grid plc wants to be listed on the London Stock Exchange. An adviser has stated that the
following are methods by which a company can obtain a new London Stock Exchange
listing for its shares.
Method 1 Offer for sale
Method 2 Placing
Method 3 Rights issue
Method 4 Offer for subscription
Which of these methods are available to Grid plc?
A Methods 1, 2 and 3 only
B Methods 2, 3 and 4 only
C Methods 1, 2 and 4 only
D Methods 1, 3 and 4 only LO 3i
14 Which of the following is the source of finance which a company can draw on most easily in
practice?
A Cash generated from retained earnings
B New share issues
C Rights issues
D Bank borrowings LO 3h, 3i
21 Ken plc's new building programme is likely to start within the next 90 days, but the precise
start date and timing of the cash flows are still uncertain. The company has £150,000
available in cash in anticipation of the investment. Which of the following is the least
appropriate use of the funds in the interim period?
A Investment in equities
B Treasury bills
C Bank deposits
D Local authority deposits LO 3h, 3i
22 Which of the following contractual relationships between a bank and a customer concerns
the bank accepting customer property for storage in its safe deposit?
A Receivables/payables
B Principal/agent
C Bailor/bailee
D Mortgagor/mortgagee LO 3g
23 Which of the following sources of finance involves the business requesting a specific sum of
money from individuals, usually via the internet?
A Alternative investment market
B Business angels
C Venture capital
D Crowdfunding LO 3j
24 Which of the following trading risks faced by a business is the inability to finance the credit
given to customers?
A Physical risk
B Liquidity risk
C Trade risk
D Credit risk LO 3j
26 A consultant has stated that a 30-year Treasury bond issued in the last year can be sold in
four different categories of market.
1 The money market
2 The capital market
3 The primary market
4 The secondary market
Which of these markets are available for the sale?
A 1 and 3 only
B 1 and 4 only
C 2 and 3 only
D 2 and 4 only LO 3h, 3i
27 Sunita Ltd has the choice of two investments carrying similar levels of risk. One is short-term
and the other is a long-term bond. Sunita Ltd should expect the interest on the longer term
bond to be:
A normally higher
B lower
C normally the same
D impossible to tell LO 3l
28 Which part of the Bank of England is responsible for the stability and resilience of the UK's
financial system as a whole?
A Financial Conduct Authority
B Monetary Policy Committee
C Financial Policy Committee
D Prudential Regulation Authority LO 3g
30 Cinq plc has been offered support by a commercial organisation in respect of its
receivables ledger. Under the offer, Cinq plc will pay the commercial organisation a
premium and in return the commercial organisation will pay Cinq plc the value of customer
debt if it becomes irrecoverable.
What service is the commercial organisation offering Cinq plc?
A Non-recourse debt factoring
B Finance against sales
C Receivables insurance
D Receivables management LO 3h
31 Lion plc is seeking to raise debt finance. It is planning to offer a series of £10,000 loan stock
to investors. The loan stock will each be redeemed at £9,500 and attracts 5% interest per
annum.
Which of the following statements concerning the loan stock is correct?
A It is a floating rate note which is redeemed at a £500 premium.
B It is a bond which is redeemed at a £500 premium.
C It is a floating rate note which is redeemed at a £500 discount.
D It is a bond which is redeemed at a £500 discount. LO 3h
3 Curtis is a Finance Manager with Glitch plc. He has made the following assertions regarding
fundamental accounting principles. Which of his assertions is correct?
A The principles must be strictly followed even when an amount is insignificant.
B When in doubt, understate assets and overstate liabilities.
C A company can never change accounting policies.
D The choice of inventory valuation method does not need to be disclosed in the
financial statements. LO 4b
5 Which accounting principle states that an item in the financial statements would make a
difference if its omission or misstatement would mislead the reader of those financial
statements?
A The going concern principle
B The materiality principle
C The cost-benefit principle
D The substance over form principle LO 4b
6 Which accounting principle states that a company should use the same accounting
methods and procedures from one accounting period to the next?
A The materiality principle
B The consistency principle
C The prudence principle
D The faithful representation principle LO 4b
7 Legislation requires certain activities to be carried out by members of bodies that are
'recognised professional regulators'.
Which three of the following activities are included in such requirements?
A Insolvency
B Management consultancy
C Investment business
D Taxation
E Payroll
F Statutory audit LO 4c
9 The ICAEW Code of Ethics is an example of which of the following theoretical approaches
to ethical codes?
A A rules-based approach
B A framework-based approach
C A compliance-based approach
D A tick-box approach LO 4b
10 The ICAEW Code of Ethics is a framework that introduces the fundamental principles which
apply to all professional accountants. In this context 'fundamental' means:
A that the principles form the basis of professional judgements and practice
B that the principles are the easiest aspects of the professional accountant's work
C that the Code is compliance-based
D that adherence to rules is all that is required of a professional accountant LO 4b
11 The managing director of Wendle Ltd wants to understand the links between technical
competence and professional responsibility in the accounting profession. Which areas
should be considered?
A Disciplinary proceedings and the profession's interest only
B Disciplinary proceedings and accounting principles only
C The profession's interest and accounting principles only
D Disciplinary proceedings, the profession's interest and accounting principles LO 4b
14 Xigent plc employs directors of finance, of human resources and of legal services, as well as
a company secretary. The company has operational problems which are delaying its
completion of a key project. If the project misses its deadline Xigent plc may suffer heavy
penalties under the terms of its contract with the customer. Part of the delay has been
caused by strikes due to bad relations with both employees and sub-contractors, but Xigent
plc is unsure whether the penalties included in the contract will come into effect given this
reason.
Whose role is it to identify whether the penalties are likely to come into effect?
A The director of finance
B The director of human resources
C The director of legal services
D The company secretary LO 4c
15 Having a questioning mind, and being alert to the possibility of misstatement in financial
statements due to error or fraud, are features of a professional accountant's:
A professional ethics
B professional behaviour
C professional scepticism
D professional competence LO 4b
16 Valerie is a Finance Manager with Watford plc. She has made the following statements
regarding fundamental accounting principles which have surprised some of her colleagues.
Statement (1) Watford plc can change its accounting policies.
Statement (2) The principles must be strictly followed at all times.
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate LO 4b
18 Digital contracts and technology that records transactions are of great relevance to the
modern day accountant.
Statement (1) Self-verifying smart contracts invoke the automatic execution of defined rules
to securely hold and transfer legal title to an asset and how to account for it.
Statement (2) Distributed ledger technology and triple entry bookkeeping allow every
accounting transaction recorded by an entity to be posted to a public ledger.
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate LO 7e
19 Distributed ledger technology and advanced accounting systems may have impacts on the
work of the auditor.
Statement (1) The rate of technological change, such as with distributed ledger
technology, is so fast that auditing regulations in regards to the audit of
transactions are now irrelevant.
Statement (2) The use of advanced accounting software reduces the need for auditors to
audit transactions and verify the ownership of assets.
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate LO 7e
2 A complaint against Roche & Co has just been brought to the attention of ICAEW's
Professional Standards department. The complaint is already in the public domain and is so
serious that it might affect the reputation of the accountancy profession in general. In such
circumstances, the department may refer the matter straight to:
A the FRC's Professional Discipline team within its Conduct Committee, running the
Accountancy Scheme
B the FRC's Professional Oversight team
C the FRC's Audit Quality Review Committee within its Conduct Committee
D the Financial Conduct Authority LO 4c
3 One of his clients has complained about Tom, a chartered accountant. The initial stage of
ICAEW's complaints and disciplinary procedure will involve trying to find a practical
solution such as giving an explanation or providing information to solve the problem. This
stage of the process is referred to as:
A consideration
B arbitration
C investigation
D conciliation LO 4c
4 ICAEW's Investigation Committee has recently looked into a complaint against Denton & Co,
a firm of chartered accountants. The Investigation Committee has found that there is a case to
answer and has offered an unpublicised caution to the firm. The firm does not agree that
there is a case to answer. Denton & Co have a right to ask for the case to be considered by
the:
A Appeal Committee
B Disciplinary Committee
C Financial Reporting Council
D Prudential Regulation Authority LO 4c
ICAEW 2019 Chapter 10: Structure and regulation of the accountancy profession 65
5 Paula recently established her own accountancy practice from small retail premises in
Hightown. She operates as a sole trader. Paula passed the last of her ICAEW examinations
last month although she is not yet permitted to offer statutory audit, insolvency, investment
business or probate services. She has already been successful in attracting several clients to
her new practice. She has not yet become a member of ICAEW but she is registered with an
approved body for supervision under the money laundering regulations.
Which of the following statements is correct?
A Paula cannot call herself an accountant.
B ICAEW can legally stop Paula from practising as a sole trader.
C Paula can offer any accountancy services she considers appropriate.
D Paula can offer any accountancy services except those in the reserved areas. LO 4c
6 In relation to which of the following does the Financial Reporting Council have statutory
powers?
A Regulation of the auditing profession
B Professional discipline of accountants
C Registration of students into the accountancy profession
D Continuing professional education and development LO 4c
7 In addition to its functions in relation to audit and accountancy, the Financial Reporting
Council also oversees regulation of:
A the actuarial profession
B the insolvency profession
C the financial advisory profession
D the investment management profession LO 4c
8 Kath wants to train as an accountant. She is aware that one of the pathways to ICAEW
membership is joining as a member of another CCAB body. A colleague has made the
following two statements about the CCAB to Kath.
Statement (1) The CCAB has five members.
Statement (2) The CCAB provides a forum in which matters affecting the profession as a
whole can be discussed and coordinated, so it enables the profession to
speak with a unified voice to government.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 4c
11 The following statements have been made about the purpose of regulating professions.
Statement (1) Regulation of professions should protect the public from being misled or
from suffering from abuse of power through knowledge or monopoly.
Statement (2) Regulation of professions should protect the profession's vested interests
from competition in order to maintain public trust.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 4c
ICAEW 2019 Chapter 10: Structure and regulation of the accountancy profession 67
12 The following statements concern the role of the Disciplinary Tribunal convened by the FRC
under the Accountancy Scheme.
Statement (1) To ensure their independence, no member of a Tribunal can be an officer or
employee of any of the accountancy professional bodies, or the FRC.
Statement (2) Tribunal hearings are not normally open to the public, except in exceptional
circumstances where the Tribunal decides that this would be in the interests
of justice.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 4b, 4c
13 The following statements concern the role of the FRC's Disciplinary Tribunal under the
Accountancy Scheme.
Statement (1) A Tribunal hearing is less formal than court proceedings but is subject to the
same restrictions as a court in accepting evidence.
Statement (2) The accountant or firm which is the subject of the complaint is entitled to
attend and be legally represented at the Tribunal hearing, and will have full
opportunity to defend any complaints, present evidence and challenge any
evidence against them.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 4b, 4c
14 Raymond & Co, a firm of chartered accountants, is the subject of the ICAEW disciplinary
procedure. Its senior partner has been told by a colleague that if the Disciplinary
Committee decides a penalty should be imposed on the firm, it has the power to:
1 fine the firm
2 exclude the firm from membership of ICAEW
3 offer an unpublicised caution
4 take away the firm's practising certificate
Which of these penalties may in fact be imposed on Raymond & Co?
A 1, 2 and 3 only
B 2, 3 and 4 only
C 1, 2 and 4 only
D 1, 3 and 4 only LO 4b, 4c
16 The financial statements of Anson plc, a listed company, depart from relevant accounting
standards and the provisions of the Companies Act 2006. The company is likely to be
referred to which of the following regulatory bodies?
A The Prudential Regulation Authority
B The Financial Conduct Authority
C ICAEW
D The Financial Reporting Council LO 4c
17 The Finance Director of Trun plc is a chartered accountant. She has been told that, in
respect of Trun plc's financial statements, she could be subject to disciplinary proceedings
by the Professional Standards department of ICAEW, or by the FRC's Professional Discipline
team. The latter will only be involved if the matter raises issues affecting:
A the public interest
B the independence of the statutory auditors
C corporate governance
D international accounting standards LO 4c
18 Maytime plc is a listed company which is outside of the FTSE 350. Maytime plc is currently
considering a new issue of shares.
Which of the following rules, relating to the potential share issue, must Maytime plc comply
with?
A The FCA's Listing Rules
B The FCA's Disclosure and Transparency Rules
C The FCA's UK Corporate Governance Code
D The FCA's Prospectus Rules LO 4c
ICAEW 2019 Chapter 10: Structure and regulation of the accountancy profession 69
19 Frances runs her own printing company in the UK. She needs some advice and has seen an
advertisement for Freda's Accountancy Services. When Frances calls to Freda set out the
advice that she needs, she gets the following answers to some of her questions which have
made her question whether or not to engage Freda.
Statement (1) Freda is free to advertise as an 'accountant' and offer the full range of
accountancy services including investment advice.
Statement (2) There is no legal requirement for Freda to be a paid-up member of one of
the CCAB bodies.
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate LO 4c
20 Nyla Ltd is a client of Mountain & Co, a firm of chartered accountants. The company has made
a complaint to the ICAEW in regards to the service it has received from Mountain & Co. After
a review, the ICAEW passed on the complaint to the Investigation Committee. The firm
responded to the complaint by agreeing that it is valid.
Which of the following options are available to the Investigation Committee?
A Take no further action against Mountain & Co
B Escalate the matter by making a formal complaint to the Disciplinary Committee about
Mountain & Co
C Issue a fine to Mountain & Co
D Offer Mountain & Co an unpublicised caution LO 4a, 4b, 4c
3 In the country of Zanadu, the population has a risk seeking attitude towards financial
matters. Zanadu's financial system is likely to be:
A a market-based system
B a stakeholder system
C a bank-based system
D a public policy system LO 5d
4 Under a unitary board structure, a company's board of directors is responsible for both
management of the business and reporting to:
A the non-executive directors
B the supervisory board
C the company's employees
D the company's shareholders LO 5d
7 A consultant has made the following statements, which he maintains are drawn from the
definition of corporate governance in the OECD's Principles of Corporate Governance.
Statement (1) Corporate governance comprises the practices and procedures for ensuring
that a company is run in such a way that it achieves its objectives.
Statement (2) Corporate governance is a set of relationships between a company's
management, its board, its shareholders and other stakeholders.
Identify whether each statement matches the definition.
A Statement (1) matches; Statement (2) does not match
B Statement (1) does not match; Statement (2) does not match
C Statement (1) matches; Statement (2) matches
D Statement (1) does not match; Statement (2) matches LO 5a
8 Different corporate governance systems reflect different ways in which companies are
managed and controlled by different board structures. The following statements have been
made about the structure of a board of directors.
Statement (1) In the UK and Germany there is a unitary board system.
Statement (2) A two-tier system comprises a management board and a supervisory board.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 5d
9 Which of the following is one of the five OECD Principles of Corporate Governance?
A Promote transparent and fair financial reporting
B Support the rights of stakeholders
C Treat major shareholders equitably
D Ensure real time, accurate disclosure and transparency LO 5a
11 The principal factor affecting the nature of business ethics over time is:
A the expectations of society
B the values of senior management
C company policies
D government regulation LO 5g
13 The ability of markets to allocate resources efficiently within a financial system is often
restricted by market imperfections.
Which three of the following are market imperfections associated with financial markets?
A Lack of codes of practice
B Information asymmetry
C Transaction costs
D Lack of regulation
E Insider dealing LO 5d, 6b
15 Woolmer plc adopts corporate responsibility as a key element in its strategies. This will
mean that the company seeks to:
A meet the minimum obligations it owes to stakeholders
B exceed the minimum obligations it owes to stakeholders
C meet the minimum obligations it owes to shareholders
D exceed the minimum obligations it owes to shareholders LO 5b
16 In seeking to address the problem of the separation of ownership and control, corporate
governance attempts to align the interests of which two of the following stakeholders?
A Investors
B Employees
C Regulators
D Managers
E Auditors LO 5b
18 The board of directors of Lake plc is concerned that the current chief executive's actions are
undermining the ethical culture at the company. She fails to listen to the concerns of
managers about unfair treatment of suppliers, and she has failed to learn from a recent
scandal in which the company was fined for data protection breaches.
To improve the ethical culture at Lake plc, which of the following is the most important
action for the board to take?
A Draft a code of business ethics for Lake plc's employees
B Rewrite Lake plc's policies regarding suppliers and customers
C Demonstrate leadership by encouraging Lake plc's chief executive to be more open
D Brief shareholders more fully about Lake plc's incentive scheme for managers LO 5h
20 Which of the following is a list of the five key elements of good corporate governance?
A Board of directors, senior management, employees, external auditors, internal auditors
B Senior management, shareholders, employees, external auditors, lenders
C Board of directors, senior management, shareholders, external auditors, internal
auditors
D Senior management, stakeholders, internal auditors, employees, government
regulators LO 5a
21 Ultra Zeta AG is a company based in Germany. The business has a dual board structure for
its Board of Directors.
Which of the following types of board forms part of the company's board structure?
A Unitary board
B Supervisory board
C Non-executive board
D Executive board LO 5b, 5c, 5d
2 The chairman of Raygold plc, a FTSE 350 company, is considering which of the company's
non-executive directors can be classified as independent. Even if a non-executive director
has worked as an employee for the company in the past, they may still be classified as
independent if the period of employment finished at least:
A two years ago
B three years ago
C four years ago
D five years ago LO 5c, 5e
3 Jumpers plc has just joined the FTSE 350. A consultant has made the following two
statements about the company and the UK Corporate Governance Code.
Statement (1) As Jumpers plc is in the FTSE 350, the Listing Rules mean that the Code
applies so the company must never depart from any of its requirements.
Statement (2) If Jumpers plc had joined the FTSE 100, compliance with the Code would
be a statutory requirement.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 5c, 5e
5 The performance of Petula in her role as an executive director of Jemson plc is due to be
evaluated in line with the requirements of the UK Corporate Governance Code. This means
that her performance will be judged in terms of:
A her effectiveness of contribution and time commitment to the role
B her time commitment to the role only
C her effectiveness of contribution only
D neither of these LO 5c, 5e
6 The UK Corporate Governance Code contains principles for the level and make-up of
directors' remuneration. A consultant has listed the following as being among these
principles.
Principle 1 Design remuneration to promote the long-term success of the company
Principle 2 Establish a formal and transparent procedure for developing policy on
executive remuneration and for fixing the remuneration packages of
individual directors
Principle 3 Obtain the auditor's approval of the remuneration set
Which of these are contained in the UK Corporate Governance Code?
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3 LO 5c, 5e
7 The board of directors of Kempton plc is considering the membership of its remuneration
committee. In this regard, which statement is true?
A The chairman must be one of the members of the remuneration committee.
B The chairman may be both a member and chair of the remuneration committee.
C The chairman may be a member but cannot chair the remuneration committee.
D The chairman cannot be a member of the remuneration committee. LO 5c, 5e
9 Flange plc is planning its forthcoming Annual General Meeting (AGM). Which, if any, of the
following committees should be represented by their chairman at the meeting?
A Audit
B Audit and remuneration
C Audit, remuneration and nomination
D None of these LO 5c, 5e, 5f
10 Paul has become aware of theft from his employer, Mortice plc, by one of its directors. He
wants to bring this to the attention of the company but does not know how to do so in line
with the UK Corporate Governance Code. Which of the following is responsible for
reviewing arrangements by which staff may, in confidence, bring such matters to the
attention of the company?
A The company chairman
B The board of directors
C The non-executive directors
D The audit committee LO 5c, 5e, 5f
11 Merton plc is a small listed company outside the FTSE 350. As a consequence, the company:
A must comply with all the requirements of the UK Corporate Governance Code
B is governed by other corporate governance regulations than the UK Corporate
Governance Code
C can be flexible in how it applies the UK Corporate Governance Code
D is not affected by the requirements of the UK Corporate Governance Code LO 5c, 5e
13 Slaithwaite plc is listed but is outside the FTSE 350. According to the UK Corporate
Governance Code, this means that the minimum number of independent non-executive
directors who should sit on the company's board is:
A one
B two
C three
D variable, as it depends on the total number of people on the board LO 5c, 5e
14 Shareholders often believe the external auditor's opinion means that the financial
statements of a company are 'correct'. If the published financial statements are
subsequently found to be 'incorrect', perhaps due to a fraud, shareholders then blame the
auditor. However, in fact responsibility for preventing and detecting fraud and error lies
with:
A the directors of the company only
B the directors and management of the company
C the management of the company only
D the company's audit committee LO 5c, 5e, 5f
15 Hilditch plc is currently creating a list of potential members of its audit committee. Under
the UK Corporate Governance Code, the list must comprise only:
A independent non-executive directors with recent and relevant financial experience
B independent non-executive directors with at least one who has recent and relevant
financial experience
C non-executive directors with recent and relevant financial experience
D non-executive directors with at least one who has recent and relevant financial
experience LO 5c, 5e, 5f
17 Megan is a full-time Executive Director of Rifkind plc, a FTSE 100 company. The executive
directors of Carnforth plc, another FTSE 100 company, have asked her to become chairman
of Carnforth plc in addition to her existing role with Rifkind plc. The guidance provided by
the UK Corporate Governance Code means that:
A Megan will be allowed to accept the offer
B Megan will not be allowed to accept the offer
C Megan will only be allowed to accept the offer if she can show she has the available
time
D Megan will only be allowed to accept the offer if the non-executive directors of both
companies agree LO 5c, 5e
18 Cheshunt plc is considering the re-appointment of its external (statutory) auditors. The
precise level of remuneration to be paid to the external auditors has been agreed between
the company chairman and the senior partners of the audit firm. However, under the
requirements of the UK Corporate Governance Code, before the re-appointment can be
finalised the chairman of Cheshunt plc must obtain the approval of:
A the nomination committee
B the remuneration committee
C the board of directors
D the audit committee LO 5c, 5e, 5f
19 Sheila is the Chief Executive of Forton plc. The remuneration committee has created a new
long-term incentive scheme for Sheila, the details of which have now been agreed.
However, under the requirements of the UK Corporate Governance Code, before the
scheme can be finalised it must be approved by the company's:
A board of directors
B shareholders
C chairman
D non-executive directors LO 5c, 5e
21 Fox plc has engaged its external (statutory) auditors to provide the company with
consultancy services. Which entity would usually be expected to examine the implications
of this engagement?
A The board of directors
B The remuneration committee
C The audit committee
D The non-executive directors LO 5c, 5e, 5f
23 Sumatra plc operates its own internal audit function. It chooses not to make use of an
external supplier for these services. It is therefore vital that the company has arrangements
to ensure that there is no compromise of the:
A independence of the internal auditors
B integrity of information security systems
C stewardship of directors
D rigour of financial reporting processes LO 5e, 5f
25 The audit committee of Lancaster plc is considering its recommendation to the board about
re-appointing Kirk & Co as the company's external (statutory) auditors. Under the
requirements of the UK Corporate Governance Code, the committee is concerned with the
past effectiveness of the audit process. It will also be concerned with which of the following
pairs of characteristics of the audit firm?
A Its integrity and independence
B Its value-for-money and integrity
C Its objectivity and value-for-money
D Its independence and objectivity LO 5c, 5e, 5f
26 Shona has just been appointed as a Director of Impala plc, an unlisted company. Following
her appointment, she will be subject to election by shareholders:
A at the first AGM after her appointment and then at intervals of no more than three years
after that
B at the first AGM after her appointment and then at intervals of no more than two years
after that
C only at the first AGM after her appointment
D at every AGM LO 5c, 5e
27 Zyntec plc is a listed company that has recently had an external audit. As well as whether
the financial statements give a 'true and fair view' of the company's performance and
financial position, which of the following will the external auditors have reported on?
A The experience and ability of the chief finance officer
B Whether the staff in the finance function are compliant with CPD requirements
C The company's compliance with the UK Corporate Governance Code
D The standard of the work performed by the internal audit function LO 5e
2 A market trader has noticed that when the price of cakes rises, consumers tend to buy more
biscuits instead. The effect operating here is:
A the income effect
B the diminishing marginal utility effect
C the substitution effect
D the price elasticity of demand LO 6a
3 Potatoes are a Giffen good. An increase in the price of potatoes will cause:
A an increase in demand for potatoes
B a decrease in demand for substitutes for potatoes
C a decrease in demand for potatoes
D an increase in demand for substitutes for potatoes LO 6a
ICAEW 2019 Chapter 13: The economic environment of business and finance 83
5 Y is a complement of X in consumption. An increase in the price of Y will:
A increase the demand for Y and decrease the demand for X
B decrease the demand for Y and increase the demand for Y
C increase the demand for both Y and X
D decrease the demand for both Y and X LO 6a
6 A brand of cheese is an inferior good. A consultant has made two statements about the
cheese.
Statement (1) Demand for the cheese will rise as incomes rise.
Statement (2) Demand for the cheese only exists because of the effects of advertising.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 6a
7 Redium is a normal good which has become increasingly unfashionable during the past
year. What changes to supply, demand and market price will this change in tastes have
created?
A No impact on the demand curve, but a fall in market price and a fall in quantity supplied
B A shift in the demand curve to the right, a fall in market price and a fall in quantity
supplied
C A shift in the demand curve to the left, a fall in market price and a fall in quantity supplied
D No impact on the demand curve, no impact on the supply curve but a fall in market price
LO 6a
8 The market for a product is a natural monopoly. Production of the product must be
associated with:
A high marginal costs
B low marginal costs
C economies of scope acting as a barrier to entry
D low fixed costs LO 6b
10 The cross elasticity of demand between the Terra product and the Nova product is zero.
The two products are:
A complements
B substitutes
C veblen goods
D unrelated LO 6a
11 The price of Yellands has fallen by 4%. Over the same period demand for Dellows, where
there has been no price change, has risen by 6.5%. The cross elasticity of demand between
the two products is:
A –1.625
B –0.620
C 1.625
D 0.620 LO 6a
12 The UK government has recently imposed a maximum price on Pratex which is set at a
lower level than its equilibrium price. In future, therefore, it can be expected that there will
be:
A excess supply of the product
B excess demand for the product
C no effect on supply but an increase in demand
D no effect on demand but a decrease in supply LO 6a, 6b
13 An analyst with Lanes plc has drawn a supply curve for one of the company's major
products, the Ledo. The curve is a vertical straight line. This indicates that supply of the
Ledo is:
A perfectly inelastic
B of unitary elasticity
C perfectly elastic
D one LO 6a
ICAEW 2019 Chapter 13: The economic environment of business and finance 85
14 There has been a significant rise in factor costs for the Tempo product during recent
months. It can be expected that there will be:
A a contraction in demand and supply
B an expansion in demand and supply
C a contraction in demand and an expansion in supply
D an expansion in demand and a contraction in supply LO 6a
15 In the market for the Optica product competitors do not compete through price. Instead
they spend substantial sums of money on raising consumer awareness through advertising.
There is some differentiation between products, often achieved through branding. There
are many buyers and sellers in the market for the product. The market for the Optica
product is characterised as:
A monopolistic competition
B oligopoly
C perfect competition
D monopoly LO 6b
16 Which three of the following are associated with conditions of perfect competition?
A Suppliers are price-makers
B Suppliers earn 'normal' profits
C Consumers lack influence over market price
D Differentiated products
E A single selling price LO 6b
17 Gromet plc has been able to achieve significant external economies of scale. This indicates
that the market for the company's only product has been:
A static, so forcing the company to achieve economies of scale in production
B growing, so enabling the economies of scale to be achieved
C contracting, so enabling the company to cut costs in distribution
D volatile, meaning that internal economies of scale were unattainable LO 6b
18 If the price of a particular product is £9.00 per unit, on average 150 units of the product are
sold per month. At a price of £10.00 per unit, on average 110 units per month are sold. The
price elasticity of demand for the product is:
A –0.42
B –2.40
C –0.27
D –0.11 LO 6a
20 Bench Ltd produces chairs. An economist predicts that, if average incomes rise next year,
demand for the chairs will increase in direct proportion to the rise in incomes (assuming all
other factors remain unchanged). The accuracy of the economist's prediction depends on
whether the chairs:
A are normal goods
B have many complementary goods
C have few complementary goods
D have few substitutes LO 6a
ICAEW 2019 Chapter 13: The economic environment of business and finance 87
24 The marginal propensity to consume measures:
A the relationship between changes in consumption and changes in consumer utility
B the proportion of household incomes spent on consumer goods
C the proportion of total national income spent on consumer goods
D the relationship between changes in income and changes in consumption LO 6c
26 The recession phase of the business cycle will normally be accompanied by all of the
following except:
A a rise in the rate of inflation
B a fall in the level of national output
C an improvement in the trade balance
D a rise in the level of unemployment LO 6c
27 The government may seek to reduce the rate of demand-pull inflation by any of the
following means except:
A reducing interest rates
B increasing VAT
C applying more stringent controls over bank lending
D reducing public expenditure LO 6c
32 If the government wishes to increase consumer spending, it should increase the rate of:
A income tax
B corporation tax
C import duties
D social security payments LO 6c
33 Economists in Zedland believe that the country's economy is entering a recovery phase.
Which of the following features of the Zedland economy would support this view?
A Rising levels of demand being met by increased production
B Rising levels of demand being met by price increases
C Capacity and labour being fully utilised
D Bottlenecks occurring in industries which are unable to meet demand LO 6c
ICAEW 2019 Chapter 13: The economic environment of business and finance 89
34 Changes in the supply of a product which arise due to reduced costs of its manufacture will
be represented on the product's supply curve by:
A a shift to the right in the supply curve
B a shift to the left in the supply curve
C movements along the supply curve
D none of these LO 6a
35 Pinewood Ltd produces two complementary products, the Buggle and the Chine.
Which of the following describes the cross elasticity of demand between the two products?
A Negative
B Indeterminate
C Zero
D Positive LO 6a
2 The government has passed regulations to change how car hire companies check whether
hirers are licensed to drive in the UK. Speedy Hire plc is a major player in the UK car hire
business. In anticipation of the new regulations the company implemented procedures
which exceeded the requirements of the regulations. Speedy Hire plc's response to the new
regulations was:
A innovation
B entrenchment
C mere compliance
D full compliance LO 6d
3 Ferndale plc is a multinational company. It has been charged with collusive behaviour in its
UK operations. If found guilty, the company could, amongst other sanctions, receive a fine
of:
A up to 10% of annual worldwide revenues
B up to 10% of annual UK revenues
C up to 20% of annual worldwide revenues
D up to 20% of annual UK revenues LO 6d
4 The government may place an additional tax on cigarettes to raise revenue for healthcare
spending. The demand for cigarettes is price inelastic.
Which of the following statements is true?
A The tax on cigarettes may not raise as much additional revenue as anticipated because
the demand for cigarettes is likely to become more elastic over time.
B The tax will not raise much additional revenue in the short term or the long term
because demand is price inelastic.
C No additional tax revenue will be raised because sellers of cigarettes will lower their
price by the amount of the tax so the price of cigarettes to consumers will not change.
D This will raise additional revenue in the short term and the long term because there are
no substitutes for cigarettes. LO 6d
6 The Fenno product is manufactured in the UK but is also imported into the UK from France.
The UK government has recently decided to apply an import quota on imports of the
product from France. The quota is below the current level of imports. This action will have
the effect of:
A only French suppliers suffering a lower price
B both UK and French suppliers suffering a lower price
C only UK suppliers enjoying a higher price
D both UK and French suppliers enjoying a higher price LO 6f
11 Anti-monopoly laws are based on the proposition that the best way to achieve efficiency
and avoid excessive prices is through:
A regulation
B increased competition
C public ownership
D oligopoly LO 6b, 6d
12 The following statements have been made about anti-monopoly legislation and market
regulation.
Statement (1) Anti-monopoly legislation compensates for lack of competition, and market
regulation promotes competition.
Statement (2) Anti-monopoly legislation promotes competition and market regulation
compensates for lack of competition.
Statement (3) Anti-monopoly legislation and market regulation promote competition
Are these statements true or false?
Statement (1) Statement (2) Statement (3)
A True False True
B True False False
C False True True
D False True False LO 6b, 6d
14 Two large listed companies recently colluded with each other to fix the price of a product
they both sell in the UK market. Collusion of this type is an example of market failure due to:
A inequality of resources
B external costs
C market power
D resource immobility LO 6b, 6d
15 Webcraft plc has a dominant position in its markets. It has received notice that it is being
investigated under Chapter 1 of the Competition Act 1998.
The following activities have been colluded in by Webcraft plc.
Activity 1 Limiting production markets
Activity 2 Agreeing with another organisation to limit competition
Activity 3 Restricting technical developments
Which of the activities may, individually, have given rise to such a notice?
A Activity 1 only
B Activity 2 only
C Activity 3 only
D Activities 1, 2 and 3 LO 6b, 6d
16 Jerome is a director of Newport plc, a listed company. During the year he made a loan to
his sister Jane, out of company funds that has not yet been repaid. When asked by the
external auditors about this, Jerome said that it is unlikely that Jane can repay the money
because she has been experiencing financial difficulties for several years.
Statement (1) Jerome has committed the offence of market manipulation under the
Financial Services Act 2012.
Statement (2) Jerome could be disqualified as a director under the Company Directors
Disqualification Act 1986.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true LO 6d
18 The government of Dryland wishes to encourage more people to eat fruit and vegetables.
Currently, the price of fruit and vegetables are high in comparison to people's incomes and
so the government is seeking ways of increasing supply from producers to lower the price
people pay.
Which of the following methods should the government use to increase supply of fruit and
vegetables?
A Increasing indirect taxation on fruit and vegetables
B Paying subsidies to fruit and vegetable producers
C Persuading producers to lower their prices
D Set a maximum price for fruit and vegetables LO 6a
As a sole trader he can raise loans and employ staff so neither of these statements is
true. He cannot issue shares to anyone as there is no limited company, so this
statement is false. As a sole trader he does have the disadvantage of personal liability.
SAMPLE PAPER
It is assumed that the company will continue on long enough to carry out Going
its objectives and commitments, so non-current assets are shown at concern
historic cost less accumulated depreciation.
A very large company's published financial statements have the amounts Materiality
rounded to the nearest £1,000.
5 B The accounting principle that states that an item in the financial statements would
make a difference if its omission or misstatement would mislead the reader of the
financial statements under consideration is the materiality principle.
6 B The consistency principle states a company should use the same accounting methods
and procedures from period to period. SAMPLE PAPER
7 A,C,F
Some areas of public practice are 'reserved' and so there are specific additional
requirements for professional accountants engaged in them. Three of these areas are
statutory audit, investment business and insolvency work. ICAEW is also the recognised
regulator for probate work.
8 A Revenue is recorded when goods or services are delivered, whether or not cash has
been received.
9 B The ICAEW Code of Ethics is a framework- or ethics-based approach, which is the
opposite of the compliance-, rule- or tick-box-based approach seen in other
jurisdictions such as the US.
10 A The fundamental principles form the basis of professional judgements and practice (A).
It does not mean that the principles are easy (B). Taking the approach of mere
compliance (C) and/or of following rules (D) is the exact opposite of what the
fundamental principles represent.
11 B Applying accounting principles is an aspect of technical competence. Disciplinary
proceedings are relevant when there has been a failure of technical competence
and/or professional responsibility. The profession's interest has no impact.
The five members of the CCAB are ICAEW, ACCA, CIPFA, ICAS and Chartered
Accountants Ireland.
9 B
ICAEW 2019 Chapter 10: Structure and regulation of the accountancy profession 125
11 A
Regulation of professions should protect the public from being misled or True
from suffering from abuse of power through knowledge or monopoly.
Regulation of professions should protect the profession's vested interests False
from competition in order to maintain public trust.
13 D
A Tribunal hearing is less formal than court proceedings but is subject to the False
same restrictions as a court in accepting evidence.
The accountant or firm which is the subject of the complaint is entitled to True
attend and be legally represented at the Tribunal hearing, and will have full
opportunity to defend any complaints, present evidence and challenge any
evidence against them.
The third option should refer to the breach of a bye-law rather than a principle.
16 D The FRC, via the Conduct Committee's Financial Reporting Review Panel, investigates
departures from relevant accounting standards and Companies Act 2006 requirements
by large companies such as those listed on the London Stock Exchange. SAMPLE PAPER
17 A The FRC's Professional Discipline team in its Conduct Committee specifically investigates
cases that raise important issues affecting the public interest. SAMPLE PAPER
18 D The Prospectus Rules relate to the issue of new securities such as shares.
ICAEW 2019 Chapter 10: Structure and regulation of the accountancy profession 127
Chapter 11: Governance and ethics
1 A,B,C
Empathy and accountability were not among the attributes identified by the Institute of
Business Ethics. The other two were courage and openness. SAMPLE PAPER
2 B Options A, C and D are all characteristics of bank-based financial systems.
3 A Household preference for equity (more risk) rather than bank deposits (less risk) means
that equity finance in a market-based system is likely to dominate the financing of
businesses. SAMPLE PAPER
4 D The reporting responsibility is to shareholders (D), not to other directors (A) nor to
employees (C). Under a unitary board structure there would not be a supervisory board
(B).
5 B Financial intermediation overcomes the problem of asymmetric information associated
with direct financing.
6 B The separation of ownership and control creates a situation where directors act as the
agents of owners (shareholders), who are, therefore, collectively the principal.
7 D
Corporate governance comprises the practices and procedures for Does not match
ensuring that a company is run in such a way that it achieves its
objectives.
Corporate governance is a set of relationships between a Matches
company's management, its board, its shareholders and other
stakeholders.
Statement (1) fails to specify that corporate governance also covers how objectives are
set.
8 D The first statement is false – Germany has a two-tier system comprising a management
board and a supervisory board, which is the second statement.
9 B Principle IV covers supporting the rights of stakeholders in corporate governance
(Option B), including the importance of creating sustainable and financially sound
companies that in turn create wealth and jobs. Option A should read 'transparent and
fair markets, and the efficient allocation of resources' (Principle I), not efficient financial
reporting. Option C should read 'all shareholders', not just major shareholders
(Principle II). Option D should read 'timely' rather than real time (Principle V).
10 A The first statement is true as set out by the International Society of Business, Economics
and Ethics. The second statement is false – corporate responsibility is measured by how
far the organisation protects the interests of those with whom it has non-contractual
relationships, such as the public at large.
11 A Corporate ethics are principally affected by society's expectations.
12 B,C,D
Options B, C and D all relate to a generic financial system. Governance structures and
regulators may or may not exist within a particular system, but they are by no means
basic elements of it.
9 C This is set out in provisions supporting main principle E2 (relations with shareholders:
constructive use of the AGM) of the Code.
10 D This is set out in provisions supporting C3 (accountability: audit committee and
auditors) of the Code. SAMPLE PAPER
ICAEW 2019 Chapter 13: The economic environment of business and finance 133
18 B Proportional change in quantity demanded = 40/150 100 = –26.6%
Proportional change in price = 1/9 100 = 11.1%
PED = –26.6/11.1 = –2.40 SAMPLE PAPER
19 A Suppliers will be encouraged to supply at that price so supply will increase, whilst at a
price above the market equilibrium price demand will fall.
20 A With normal goods, if incomes rise demand for the product will rise and this will be the
case regardless of the existence of either substitutes or complements. SAMPLE PAPER
21 D The basic economic problem is one of allocating scarce resources and economics is
the study of how those scarce resources are or should be used.
22 B Enterprise is one of the four factors of production, along with labour (including
management), land and capital.
23 B The ability to obtain discounts because of the size of orders (bulk buying, B) is a direct
result of larger scale operations. Technical improvements (D) could apply at any scale
of operations, as well as the employment of skills (C) and the introduction of a new
product (A).
24 D The relationship between changes in income and changes in consumption.
25 A When an economy booms, it reaches a turning point and goes into recession. The
recession deepens into a depression. Eventually, there is another turning point in the
economy, and the business cycle goes into recovery and then back into boom, and so on.
26 A Recession and declining demand go together. Inflation and declining demand do not.
The trade balance is likely to improve due to a decrease in demand for imports.
27 A Lower interest rates (A) is likely to result in higher consumer borrowing and even
stronger demand-pull inflation. B, C and D will all be measures which reduce the
demand for goods and services. Higher value added tax (B) could increase total
spending on goods and services inclusive of the tax, but spending net of tax will fall,
and this should result in a reduction in demand-pull inflation. Bank lending (C) is
largely used for spending on goods and services by the people who borrow the
money. Public expenditure (D) represents the government's own demand.
28 D Aggregate demand exceeding aggregate supply is an example of demand pull inflation.
29 B Low interest rates will encourage spending rather than saving. Investment will be
encouraged because the opportunity cost of investing is reduced.
30 D Fiscal policy is concerned with the government's tax income, expenditure and
borrowing (to make up the difference between income and expenditure).
31 C It is aggregate supply in the economy which is at issue. SAMPLE PAPER
32 D Higher social security payments (D) will give consumers more cash to spend. Higher
taxation (A and B) will tend to reduce consumer spending. Higher import tariffs (C)
might result in greater consumer expenditure on imports inclusive of tariffs, but the
volume and the net-of-tariff value of imports purchased will fall.
33 A All of the other options are features of a 'boom' phase.
34 A If supply conditions (such as the cost of making a product) alter, a different supply
curve is created. When there is a fall in costs, suppliers will be willing to increase supply
for a given selling price and the supply curve will shift to the right.
35 A If products are complements, a rise in the price of one will decrease demand for that
good and therefore also for the complementary good. Therefore the cross elasticity of
demand between them is negative.
36 B Demand pull inflation causes price rises in the economy and is the result of persistent
excess of demand over supply in the economy as a whole.
Exam format
The Mock Exam should consist of 50 questions worth two marks each.
Style of exam questions
1 Each question should conform to the style used in the sample paper ie:
• Multiple Choice Question (MCQ) (1 from 4); or
• Multiple Response Question (MRQ) (more than 1 from 4 or more).
1 Ch 1; Q 11 Ch 1; Q 8 Ch 1; Q 1
2 Ch 1; Q 14 Ch 1; Q 13 Ch 1; Q 12
3 Ch 2; Q 11 Ch 2; Q 15 Ch 2; Q 16
4 Ch 2; Q 12 Ch 2; Q 17 Ch 2; Q 29
5 Ch 2; Q 24 Ch 2; Q 28 Ch 2; Q 18
6 Ch 3; Q 2 Ch 3; Q 4 Ch 3; Q 6
7 Ch 3; Q 18 Ch 3; Q 12 Ch 3; Q 19
8 Ch 3; Q 20 Ch 3; Q 11 Ch 3; Q 9
9 Ch 3; Q 22 Ch 3; Q 26 Ch 3; Q 25
10 Ch 3; Q 23 Ch 3; Q 16 Ch 3; Q 17
11 Ch 4; Q 4 Ch 4; Q 9 Ch 4; Q 24
12 Ch 4; Q 18 Ch 4; Q 20 Ch 4; Q 23
13 Ch 4; Q 21 Ch 4; Q 19 Ch 4; Q 22
14 Ch 5; Q 3 Ch 5; Q 5 Ch 5; Q 7
15 Ch 5; Q 24 Ch 5; Q 26 Ch 5; Q 25
16 Ch 6; Q 25 Ch 6; Q 15 Ch 6; Q 20
17 Ch 6; Q 28 Ch 6; Q 29 Ch 6; Q 27
18 Ch 6; Q 31 Ch 6; Q 35 Ch 6; Q 30
19 Ch 6; Q 32 Ch 6; Q 33 Ch 6; Q 36
20 Ch 6; Q 37 Ch 6; Q 34 Ch 6; Q 38
21 Ch 6; Q 40 Ch 6; Q 39 Ch 6; Q 26
22 Ch 7; Q 6 Ch 7; Q 17 Ch 7; Q 1
23 Ch 7; Q 8 Ch 7; Q 5 Ch 7; Q 8
24 Ch 7; Q 9 Ch 7; Q 7 Ch 7; Q 16
25 Ch 7; Q 12 Ch 7; Q 13 Ch 7; Q 15
26 Ch 7; Q 14 Ch 7; Q 11 Ch 7; Q 19
27 Ch 8; Q 2 Ch 8; Q 22 Ch 8; Q 28
28 Ch 8; Q 4 Ch 8; Q 13 Ch 8; Q 18
29 Ch 8; Q 9 Ch 8; Q 8 Ch 8; Q 5
30 Ch 8; Q 19 Ch 8; Q 23 Ch 8; Q 24
31 Ch 9; Q 2 Ch 9; Q 5 Ch 9; Q 3
32 Ch 9; Q 6 Ch 9; Q 8 Ch 9; Q 9
33 Ch 9; Q 14 Ch 9; Q 7 Ch 9; Q 11
34 Ch 9; Q 18 Ch 9; Q 19 Ch 9; Q 16
35 Ch 10; Q 16 Ch 10; Q 18 Ch 10; Q 5
36 Ch 10; Q 17 Ch 10; Q 2 Ch 10; Q 3
37 Ch 11; Q 1 Ch 11; Q 10 Ch 11; Q 11
38 Ch 11; Q 3 Ch 11; Q 4 Ch 11; Q 5
39 Ch 11; Q 16 Ch 11; Q 15 Ch 11; Q 14
40 Ch 11; Q 17 Ch 11; Q 6 Ch 11; Q 9
41 Ch 11; Q 18 Ch 11; Q 12 Ch 11; Q 13
42 Ch 12; Q 10 Ch 12; Q 2 Ch 12; Q 5
43 Ch 12; Q 20 Ch 12; Q 19 Ch 12; Q 13
44 Ch 12; Q 23 Ch 12; Q 22 Ch 12; Q 18
45 Ch 13; Q 15 Ch 13; Q 17 Ch 13; Q 9
46 Ch 13; Q 18 Ch 13; Q 14 Ch 13; Q 11
47 Ch 13; Q 20 Ch 13; Q 1 Ch 13; Q 7
48 Ch 13; Q 31 Ch 13; Q 32 Ch 13; Q 33
49 Ch 14; Q 6 Ch 14; Q 2 Ch14 ; Q 4
50 Ch 14; Q 14 Ch 14; Q 13 Ch 14; Q 15
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