Bec - 2017 Aia Released Questions.pdf 48d13
This document was ed by and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this report form. Report 3b7i
Overview 3e4r5l
& View Bec - 2017 Aia Released Questions.pdf as PDF for free.
More details w3441
- Words: 8,228
- Pages: 38
2017 AIA Newly Released Questions—Business
BUSINESS 2017 AIA Newly Released MCQs
Page 1 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
2017 AIA Business Newly Released MCQs—Medium (Moderate) Rating
1. A-05000 Which of the following statements is true regarding internal control objectives of information systems? a.
Primary responsibility of viable internal control rests with the internal audit division.
b.
A secure system may have inherent risks due to management's analysis of trade-offs identified by cost-benefit studies.
c.
Control objectives primarily emphasize output distribution issues.
d.
An entity's corporate culture is irrelevant to the objectives.
Unit & Module to be Assigned To:
B-1, M-1
Representative Task:
BI-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
10
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. One of the limitations of even a well-designed internal control system is management's ability to override those controls. One reason management may override them is that the benefit of doing so exceeds the cost, which represents an inherent risk of even the strongest systems. Choice "a" is incorrect. Senior management and the board of directors have primary responsibility for establishing, implementing, and enforcing internal controls. Internal Audit is a partner in the process, but it does not have primary responsibility. Choice "c" is incorrect. Objectives within the internal control integrated framework include operations, reporting, and compliance objectives. Output distribution issues are just one aspect of what may be covered through the establishment of these objectives. Choice "d" is incorrect. The corporate culture (or "tone at the top") is extremely critical to the process of establishing and enforcing objectives.
Page 2 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
2. A-05001 Employees of an entity feel peer pressure to do the right thing; management appropriately deals with signs that problems exist and resolves the issues; and dealings with customers, suppliers, employees, and other parties are based on honesty and fairness. According to the COSO, the above scenario is indicative of which of the following? a.
Strategic goals.
b.
Operational excellence.
c.
Reporting reliability.
d.
Tone at the top.
Unit & Module to be Assigned To:
B-1, M-1
Representative Task:
BI-A2.3
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
6
Correct Answer Choice:
D
ANSWER: Choice "d" is correct. The "tone at the top" represents the culture of an organization in of the standards related to internal controls and conduct that senior management and the board of directors set for an entity. When employees are focused on doing the right thing, when management quickly addresses and resolves issues, and when fairness and honesty prevail in dealings with internal and external people, a positive tone for the organization is established. Choice "a" is incorrect. The items described in the question relate to the tone/culture of an organization rather than specific short- or long-term goals. Choice "b" is incorrect. Operational excellence relates to a desire to perform at the highest level, which is more of an objective and a goal than the "tone at the top." Choice "c" is incorrect. Reporting reliability is addressed as part of establishing reporting objectives rather than setting the tone at the top.
Page 3 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
3. A-05002 According to the COSO, which of the following identifies the group directly responsible for the implementation and development of the enterprise risk management framework? a.
Management.
b.
The board of directors.
c.
External auditors.
d.
Internal auditors.
Unit & Module to be Assigned To:
B-1, M-2
Representative Task:
BI-B1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
13
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. It is incumbent upon management to determine how the inevitable risks that an entity faces must be balanced with the desire to grow stakeholder value. Management is responsible for developing and implementing the enterprise risk management framework and process. Choice "b" is incorrect. The board of directors is responsible for the oversight of management, which includes assessing the work it is doing from an enterprise risk management standpoint and holding management able for its work. Choice "c" is incorrect. External auditors are parties from outside of an entity which will come in to evaluate the risk management process, along with internal controls and many other operational and reporting functions. External auditors are not tasked with developing and implementing an entity's risk management framework. Choice "d" is incorrect. Internal auditors are employees of an entity who serve to operate similarly to external auditors from an evaluation standpoint; they are not tasked with developing and implementing a risk management framework.
Page 4 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
4. A-05014 Which of the following organizations was established by the Sarbanes-Oxley Act of 2002 to control the auditing profession? a.
Information Systems Audit and Control Foundation (ISACF).
b.
IT Governance Institute (ITGI).
c.
Public Company ing Oversight Board (PCAOB).
d.
Committee of Sponsoring Organizations (COSO).
Unit & Module to be Assigned To:
B-1, M-3
Representative Task:
BI-C1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
27
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. Congress, through the Sarbanes-Oxley Act of 2002, created the PCAOB to oversee public company and broker/dealer audits. Choice "a" is incorrect. ISACF, which traces its origins to the 1970s, was developed for the purpose of building knowledge related to information technology governance and control. Choice "b" is incorrect. ITGI was formed in 1998 to serve as a think tank for global IT governance. Choice "d" is incorrect. The COSO is a private sector initiative that was established in the mid-1980s for the purpose of assessing fraudulent financial reporting. Both the Internal Control-Integrated Framework and the Enterprise Risk Management-Integrated Framework are COSO initiatives.
Page 5 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
5. A-05021 A government is most likely to reduce taxes on investments when: a.
The real exchange rate is expected to be unusually high.
b.
Inflation is expected to be unusually low.
c.
The gross domestic product is expected to be unusually high.
d.
Capital spending is expected to be unusually low.
Unit & Module to be Assigned To:
B-5, M-1
Representative Task:
BII-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
10
Correct Answer Choice:
D
ANSWER: Choice "d" is correct. Reducing taxes is a fiscal policy decision designed to increase disposable income and facilitate future spending and economic growth. Lower-than-expected capital spending can be addressed through lower taxes, which puts more money into the hands of businesses and consumers. Choice "a" is incorrect. Given their unpredictability and volatility, exchange rate fluctuations are unlikely to affect government decisions to raise or lower taxes. Choice "b" is incorrect. Lower-than-expected inflation means that the costs of goods and services will be more affordable for purchasers, implying that the government will not need to reduce taxes to generate economic activity. Choice "c" is incorrect. If GDP is growing faster than expected, the government does not need to reduce taxes to spur higher spending.
Page 6 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
6. A-05024 Which of the following statements is correct regarding an economy at the peak of the business cycle? a.
The economy will be in a static equilibrium.
b.
The economy will be at the natural rate of unemployment.
c.
Incomes will be stable.
d.
The rate of inflation will decrease.
Unit & Module to be Assigned To:
B-5, M-1
Representative Task:
BII-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
5
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. At the natural rate of unemployment, there is frictional, structural, and seasonal unemployment; cyclical unemployment is at 0 percent, which implies that the economy is operating at its highest potential level. Choice "a" is incorrect. The peak is a temporary state (to be followed by a contractionary phase), which implies that the economy will not remain static. Choice "c" is incorrect. Both costs and prices reach their highest levels at a peak. Although incomes are potentially rising during a peak, they will either level off or decline as the cycle moves into the contractionary phase. Choice "d" is incorrect. Price levels are likely to still be rising during a peak. Once the peak shifts to a contractionary phase, price levels may decline.
Page 7 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
7. A-05026 In which of the following situations would it be advantageous for a country to export a manufactured product? a.
The country's government prefers to be self-sufficient.
b.
The country has an absolute advantage in the production of a complementary product.
c.
The country has a comparative advantage in the production of the item.
d.
The country has a higher opportunity cost for production of the item.
Unit & Module to be Assigned To:
B-5, M-6
Representative Task:
BII-B1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
65
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. A comparative advantage stems from specializing in the trade and production of specific products. If a country is able to produce a product more efficiently and cost effectively than its peers, selling these products overseas offers a potential for higher profits. Choice "a" is incorrect. A self-sufficient government will not focus on exports and, in fact, may make it more difficult and costly for a company to export its goods. Choice "b" is incorrect. Absolute advantage refers to a company's ability to produce more output (relative to a set amount of resources) than its peers. The extent to which a company exports a good that is complementary will depend on the export strategy for the other good or goods with which it is sold. Choice "d" is incorrect. The higher the opportunity cost, the more likely it is that the company will shift its resources to other production options that will produce a greater return. Higher opportunity costs equate to lower competitive advantage.
Page 8 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
8. A-05028 The consensus of economic forecasts indicates that consumer prices are likely to increase because of increases in aggregate demand. Which of the following outcomes is most likely to occur as prices increase? a.
Quantity of output increases if there is capacity to produce.
b.
Unemployment increases.
c.
Profits fall if all costs are fixed.
d.
Profits rise even if costs increase.
Unit & Module to be Assigned To:
B-5, M-1
Representative Task:
BII-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
9
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. With increases in aggregate demand, both output and prices will increase. The demand curve shifts to the right, which results in a higher quantity of goods supplied. Choice "b" is incorrect. Higher economic activity (output) will tend to cause unemployment to decrease, as companies need more workers to meet the higher demand. Choice "c" is incorrect. If costs are fixed and prices are rising, profits will rise rather than fall. Choice "d" is incorrect. Profits may continue to rise, but only if sales exceed costs. If costs are increasing, sales have to increase by more than costs for profits to rise.
Page 9 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
9. A-05030 A U.S.-based company decides to invest capital in an emerging market operation that has a lower expected return rate compared to the expected return for an alternative domestic operation. Which of the following statements correctly s this decision? a.
Management expects the U.S. dollar to decline in value relative to the foreign location's currency.
b.
Management expects inflation to increase in the emerging market compared to the U.S. inflation rate.
c.
Management expects inflation to decrease in the U.S. compared to the foreign location's inflation rate.
d.
Management expects the U.S. dollar to strengthen in value relative to the foreign location's currency.
Unit & Module to be Assigned To:
B-1, M-5
Representative Task:
BII-C2.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
49
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. A declining local currency (here, the U.S. dollar) implies that the dollar becomes less expensive relative to foreign currency. Even though the expected percentage return is higher for the domestic operation, an investor will be able to take advantage of the strength of the foreign currency on the international investment relative to the dollar. Choice "b" is incorrect. Investors will want to purchase investments denominated in foreign currency when domestic inflation is higher (not lower) relative to the emerging market. Choice "c" is incorrect. Investors will want to purchase investments denominated in foreign currency when domestic inflation is higher (not lower) relative to the emerging market. Choice "d" is incorrect. An investor would be more inclined to purchase domestically if the expectation was that the U.S. dollar would strengthen relative to a foreign currency.
Page 10 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
10. A-05051 Which of the following quantitative factors, when compared to its industry average, could be an indicator of potential corporate failure? a.
High cash flow to total liabilities.
b.
High retained earnings to total assets.
c.
High fixed cost to total cost structure.
d.
High fixed assets to non-current liabilities.
Unit & Module to be Assigned To:
B-2, M-2
Representative Task:
BIII-A1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
18
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. When fixed costs are high relative to variable costs and total costs, the company's operating leverage is high. What this implies is that the company must generate enough in sales in order to meet its fixed obligations. This equates to higher risk and could cause the company to fail if sales are not high enough. Choice "a" is incorrect. High cash flow relative to liabilities would be a positive indicator for a corporation. Choice "b" is incorrect. Higher retained earnings are not indicative of potential corporate failure. Choice "d" is incorrect. Higher non-current assets (relative to noncurrent liabilities) are not indicative of potential corporate failure.
Page 11 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
11. A-05052 The main reason that a firm would strive to reduce the number of days sales outstanding is to increase: a.
s receivable.
b.
Cash.
c.
Cost of goods sold.
d.
Contribution margin.
Unit & Module to be Assigned To:
B-2, M-3
Representative Task:
BIII-B1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
26
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Days sales outstanding represents the amount of time it takes for a company to convert its s receivable into cash. Efforts to reduce this number are linked to a desire to increase cash (to collect it faster). Choice "a" is incorrect. A desire to increase s receivable would result in a days sales outstanding number that would increase rather than decrease. Choice "c" is incorrect. Cost of goods sold does not affect the days sales outstanding calculation. Choice "d" is incorrect. The contribution margin is equal to sales less variable costs; this does not relate to the days sales outstanding calculation.
Page 12 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
12. A-05053 A limitation of using the discounted payback method to evaluate a project is that it ignores which of the following? a.
Cash flows after the payback period.
b.
Duration of funds being tied up.
c.
A project's cost of capital.
d.
A project's breakeven point.
Unit & Module to be Assigned To:
B-2, M-9
Representative Task:
BIII-C1.2
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
88
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. For both the payback and discounted payback methods, cash flows that occur after the payback period are not ed for in the calculations. Once the initial investment is returned, future cash flows are not considered. Choice "b" is incorrect. The duration of funds being tied up are definitely considered, as this is what the discounted payback method is designed to measure. Choice "c" is incorrect. The cost of capital is considered, as this is used to discount each individual cash flow to present value. Choice "d" is incorrect. Determining the breakeven point (in of time) is the purpose of this method.
Page 13 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
13. A-05063 What should a company do when seeking competitive advantages in planning for the implementation of a new software system? a.
Design an optimal process and then align the software.
b.
Design the software to fit the existing processes.
c.
Direct manpower to the non-bottleneck process areas.
d.
Allow management to dictate processes.
Unit & Module to be Assigned To:
B-6, M-6
Representative Task:
BIV-E1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
52
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. The implementation of new software is often a great opportunity to not only assess the software's capabilities but also to revisit and ultimately optimize processes in order to align them with the software. Choice "b" is incorrect. Deg software to fit existing processes is often very costly and does not accommodate revisiting and optimizing processes in order to align them with the new software. Choice "c" is incorrect. Bottleneck process areas create more risk than non-bottleneck areas, which implies that the most efficient use of manpower is to direct it toward bottlenecks. Choice "d" is incorrect. A business process manager, along with subject matter experts, should determine the processes and how the software can be aligned to those processes.
Page 14 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
14. A-05154 A company has two departments and allocates all overhead costs based on department revenues. The following information applies: Department 1 revenue
$1,000,000
Department 2 revenue
1,500,000
Corporate overhead costs
250,000
Department overhead costs
175,000
What amount is the company's total overhead cost for Department 2? a.
$425,000
b.
$255,000
c.
$170,000
d.
$105,000
Unit & Module to be Assigned To:
B-3, M-3
Representative Task:
BV-B1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
31
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Total overhead costs are $425,000 (Corporate costs of $250,000 + Department costs of $175,000). If overhead is allocated based on revenue, then Department 1 will receive 40% of the overhead allocation ($1,000,000 / ($1,000,000 + $1,500,000) = 40%) and Department 2 will receive 60% of the allocation ($1,500,000 / ($1,000,000 + $1,500,000) = 60%). So for Department 2, $425,000 x 60% = $255,000. Choice "a" is incorrect. This amount represents the total amount of overhead to be allocated between both departments. Choice "c" is incorrect. This amount represents the amount of overhead allocated to Department 1. Choice "d" is incorrect. This amount is much less than the overhead to be allocated to both Departments 1 and 2.
Page 15 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
15. A-05155 Which of the following methods involves comparing a company's internal processes that need to be improved to those of external companies identified as being best in class? a.
Balanced scorecard.
b.
Benchmarking.
c.
Economic value added.
d.
Performance measurement.
Unit & Module to be Assigned To:
B-1, M-2
Representative Task:
BI-B2.2
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
20
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Benchmarking involves a company taking its own business metrics and processes and comparing them to those of other (similar) organizations that are considered the "best in class." The goal would be to determine what a company needs to do to mirror those considered the best. Choice "a" is incorrect. The balanced scorecard presents metrics covering multiple performance dimensions within a company. Choice "c" is incorrect. Economic value added (EVA) is used to determine whether performance is meeting standards. The calculation takes net operating profit after taxes and subtracts a "required return." Choice "d" is incorrect. Performance measurement involves collecting, assessing, and presenting both financial and nonfinancial data for an organization in order to determine whether its strategic goals are being met.
Page 16 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
16. A-05156 When selecting suppliers before implementing a just-in-time (JIT) purchasing system, a company must take extreme care because a JIT purchasing system: a.
Relies on suppliers to deliver products when needed.
b.
Depends on a great number of highly motivated suppliers.
c.
Shifts responsibility for order taking and fulfillment to the supplier.
d.
Relies on competent suppliers, which eliminates the need for backflush costing.
Unit & Module to be Assigned To:
B-2, M-4
Representative Task:
BIII-B2.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
34
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. Because JIT does not entail keeping a significant amount of inventory on hand, suppliers must be ready to provide products as soon as there is a need. Choice "b" is incorrect. JIT does not require a large number of very motivated suppliers in order to be successful; the key is that the suppliers used by a company must be ready to deliver the products when needed. Choice "c" is incorrect. The responsibility for order taking and fulfillment is not shifted to the supplier any more than it would be under a non-JIT system. Choice "d" is incorrect. Competent suppliers are needed in order for JIT to work, but backflush costing as a costing system is very common for JIT systems. Under backflush costing, the production of goods is typically completed before the costing process begins (which eliminates the cumbersome need to track costs throughout production).
Page 17 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
17. A-05157 Company management would like to calculate the breakeven point in sales dollars of its lone product, a farm combine-planter. The following cost information is available: Combine-planter unit selling price
$ 1,000
Variable manufacturing expenses per unit
800
Other variable expenses
100
Fixed manufacturing expenses
15,000
Marketing expense (fixed)
7,000
What amount is the company's breakeven point in sales? a.
$70,000
b.
$110,000
c.
$150,000
d.
$220,000
Unit & Module to be Assigned To:
B-4, M-2
Representative Task:
BV-D2.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
18
Correct Answer Choice:
D
ANSWER: Choice "d" is correct. The contribution margin = $1,000 – 800 – 100 = $100. The contribution margin ratio (10 percent) takes the contribution margin of $100 and divides it by the selling price of $1,000. The breakeven point in sales can be calculated using the contribution margin ratio and the following formula:
BE Point in Dollars =
Total Fixed Costs
= Contribution Margin Ratio
$22,000 0.10
Choices "a", "b", and "c" are incorrect, per the explanation above.
= $220,000
Page 18 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
2017 AIA Business Newly Released MCQs—Difficult (Hard) Rating
18. A-05158 According to the COSO, a primary purpose of monitoring internal control is to that the internal control system remains adequate to address changes in: a.
Risks.
b.
The law.
c.
Technology.
d.
Operating procedures.
Unit & Module to be Assigned To:
B-1, M-1
Representative Task:
BI-A2.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
7
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. Risks are fluid in that they regularly change in of likelihood and severity. In addition, new risks can arise while old risks can disappear. Internal controls should always be monitored for the purpose of addressing changes to risks. Choice "b" is incorrect. Although changes in the law may ultimately require adjusting internal controls, this is not a primary purpose for monitoring. Choice "c" is incorrect. Technology changes regularly, but this is not a primary purpose for monitoring internal controls. Choice "d" is incorrect. Operating procedure changes are managed as part of the existing control activities component of internal control.
Page 19 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
19. A-05159 The materials manager of a warehouse is given a new product line to manage with new inventory control procedures. Which of the following sequences of the COSO internal control monitoring-for-change continuum is affected by the new product line? a.
Control baseline but not change management.
b.
Change management but not control baseline.
c.
Neither control baseline nor change management.
d.
Both control baseline and change management.
Unit & Module to be Assigned To:
B-1, M-1
Representative Task:
BI-A2.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
7
Correct Answer Choice:
D
ANSWER: Choice "d" is correct. The COSO identifies four stages of the change continuum beginning with control baseline, followed by change identification, change management, and then control validation/update. The control baseline is the starting point at which management can understand the design of the internal control system and whether controls have been put in place to accomplish the organization's internal control objectives. Change management occurs as needed adjustments to the internal control system are implemented. Because a new product line is now under the purview of the manager, this will affect not only the baseline but also the change management sequence. Choices "a", "b", and "c" are incorrect per the explanation above.
Page 20 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
20. A-05160 According to the COSO, which of the following differences relevant to the risk-assessment process is most likely to exist between a large entity and a small entity? a.
The CEO of a small entity is more likely than the CEO of a large entity to be attuned to risks arising from internal factors through hands-on involvement with all levels of personnel.
b.
The risk-assessment process in a small entity is more structured than in a large one because of the nature of some of the internal control components in a small entity.
c.
An owner-manager of a small entity will not normally learn about risks arising from external factors through direct with customers, suppliers, and other outsiders, whereas in large entities this process is part of the entity's primary way of identifying new risk.
d.
Risk assessment in a small entity, as opposed to that in a large entity, can be problematic to implement because the in-depth involvement of the CEO and other key managers is a conflict of interest that must be addressed separately in the internal control assessment process.
Unit & Module to be Assigned To:
B-1, M-2
Representative Task:
BI-B2.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
20
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. A CEO is much more likely to be familiar with individual people and processes within a small entity. Along with that familiarity will be an understanding of risks associated with internal factors. Larger entities are challenging to manage because a CEO is more likely to primarily work with direct reports (CFO, CIO, etc.) rather than working hands-on with all personnel, simply because of the scope of the operation. Choice "b" is incorrect. A larger entity is more likely to have a structured risk-assessment process, as smaller entities are easier to manage in more of a fluid, ad hoc manner. Choice "c" is incorrect. With small entities, the owner-manager will often work directly with external parties, such as suppliers and customers. Through these interactions, risks associated with external factors can be identified and assessed. Choice "d" is incorrect. Because conflicts of interest inherently represent risks, they would be identified and managed as part of the risk-assessment process.
Page 21 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
21. A-05161 According to the COSO, the presence of a written code of conduct provides for a control environment that can: a.
Override an entity's history and culture.
b.
Encourage teamwork in the pursuit of an entity's objectives.
c.
Ensure that competent evaluators are implementing and monitoring internal controls.
d.
that information systems are providing persuasive evidence of the effectiveness of internal controls.
Unit & Module to be Assigned To:
B-1, M-3
Representative Task:
BI-C1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
30
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. A written code of conduct helps management set the tone for the organization; its existence promotes (among other things) honest/ethical conduct, teamwork, compliance, and appropriate disclosure. Choice "a" is incorrect. Overriding history and culture definitely is not the intent of having a code of conduct. Choice "c" is incorrect. A code of conduct will not help to ensure that a company has competent evaluators implementing and monitoring internal controls. Choice "d" is incorrect. Information systems are addressed independently, outside of a written code of conduct.
Page 22 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
22. A-05162 Which of the following statements is correct regarding the requirements of the Sarbanes-Oxley Act of 2002 for an issuer's board of directors? a.
Each member of the board of directors must be independent from management influence, based on the member's prior and current activities, economic and family relationships, and other factors.
b.
The board of directors must have an audit committee entirely composed of who are independent from management influence.
c.
The majority of of the board of directors must be independent from management influence.
d.
The board of directors must have a compensation committee, a nominating committee, and an audit committee, each of which is entirely composed of independent .
Unit & Module to be Assigned To:
B-1, M-3
Representative Task:
BI-C1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
27
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Per Sarbanes-Oxley, an issuer's board must establish an audit committee composed entirely of who are independent and not influenced by management. Choice "a" is incorrect. Independence is not required for every member of the board. Choice "c" is incorrect. Per Sarbanes-Oxley, independence relates to compensation received from the issuer and affiliation, not management influence. Choice "d" is incorrect. An audit committee is a requirement, but "compensation" and "nominating" committees are not required.
Page 23 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
23. A-05163 A country reduces its rate of monetary growth. Which of the following is the expected result for the country's economy? a.
Higher net exports.
b.
Higher investment.
c.
Lower GDP growth.
d.
Lower interest rates.
Unit & Module to be Assigned To:
B-5, M-2
Representative Task:
BII-A1.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
28
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. Monetary growth relates to an increase in the money supply. If the money supply declines, this will lead to higher interest rates, a reduction in firm investment and household consumption, a decrease in aggregate demand, and a reduction in GDP. Choice "a" is incorrect. Higher net exports are indicative of an increase in GDP (economic growth). The effect on GDP will be negative if monetary growth slows or declines. Choice "b" is incorrect. A reduction in monetary growth will lead to lower rather than higher investment. Choice "d" is incorrect. A reduction in monetary growth will lead to higher rather than lower interest rates.
Page 24 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
24. A-05164 Which of the following changes would most effectively halt a period of inflation? a.
Decreasing interest rates by a large amount.
b.
Decreasing savings by a small amount.
c.
Increasing interest rates by a large amount.
d.
Increasing savings by a small amount.
Unit & Module to be Assigned To:
B-5, M-1
Representative Task:
BII-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
10
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. Increasing interest rates reduces aggregate demand, which in turn will reduce output (GDP) and lower prices. Choice "a" is incorrect. Decreasing interest rates increases aggregate demand, which in turn will increase output (GDP) and raise prices. Choices "b" and "d" are incorrect. Changing savings by small amounts is unlikely to have a major effect on price levels.
Page 25 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
25. A-05166 Which of the following is the most likely result of imposing tariffs to increase domestic employment? a.
A long-run reallocation of workers from export industries to protected domestic industries.
b.
A short-run increase in domestic employment in import industries from export industries.
c.
A decrease in the tariff rates of foreign nations.
d.
A decrease in consumer prices in the domestic market.
Unit & Module to be Assigned To:
B-5, M-6
Representative Task:
BII-B1.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
67
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. A tariff is a tax imposed on imported goods and services. One of the desired effects of implementing a tariff is that if imported goods and services become more expensive, companies and individuals will be more likely to produce domestically—thereby increasing domestic employment. Taxes will have a negative effect on international business, thereby increasing domestic business. Workers will be needed to meet the demand domestically. Choice "b" is incorrect. Tariffs on imported goods will likely result in a short-run decrease in domestic employment in import industries. Choice "c" is incorrect. An increase in tariffs implemented domestically will likely lead to an increase in tariff rates of foreign nations. Choice "d" is incorrect. If anything, higher tariffs and increases in domestic employment will lead to higher consumer prices as costs increase and sales must increase in order to maintain profits.
Page 26 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
26. A-05167 A company considers investing $20 million in a foreign company whose local currency is under pressure. The company suspects that the exchange rate may fluctuate soon. The exchange rate at the time of the investment is 2.57 to $1.00. After the investment, the exchange rate changes to 3.15 to $1.00. What is the change in the value of the company's investment in U.S. dollars? a.
18.4 percent increase.
b.
18.4 percent decrease.
c.
22.6 percent increase.
d.
22.6 percent decrease.
Unit & Module to be Assigned To:
B-1, M-5
Representative Task:
BII-C1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
49
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. An initial investment of $20 million is worth 51,400,000 in foreign currency based on an exchange rate of 2.57 to $1.00. After the exchange rate change (3.15 to $1.00), 51,400,000 is worth $16,317,460. A decline from $20,000,000 to $16,317,460 represents a decline of $3,682,540, or 18.4 percent. Choice "a" is incorrect. The decline in the foreign currency relative to the U.S. dollar hurt the company, as the investment denominated in the foreign currency lost value. Choice "c" is incorrect. The foreign currency lost value relative to the U.S. dollar, which causes the company's investment to decline. Choice "d" is incorrect. This choice incorrectly compares the decline of $3,682,540 to the new value in U.S. dollars of $16,317,460.
Page 27 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
27. A-05168 A corporation has $50,000 in equity and a debt-to-total-assets ratio of 0.5. The firm wants to reduce this ratio to 0.2 by selling new common stock and using the proceeds to repay principal on outstanding longterm debt. What amount of additional equity financing must the corporation obtain to accomplish this objective? a.
$20,000
b.
$30,000
c.
$80,000
d.
$100,000
Unit & Module to be Assigned To:
B-4, M-3
Representative Task:
BV-D2.3
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
33
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Because Total assets = Debt + Equity, the debt-to-total assets ratio can be restated as follows: Debt / (Debt + Equity). If the current ratio is equal to 0.5, then debt must be equal to $50,000. $50,000 in Debt / ($50,000 in debt + $50,000 in equity) = 0.5. By issuing an additional $30,000 in equity and using the proceeds to pay down debt, equity increases to $80,000 and debt decreases to $20,000. The ratio with the new numbers is calculated as follows:
Debt − to − total − assets =
$20,000 ($20,000+$80,000)
= 0.2
Choice "a" is incorrect. Issuing $20,000 in equity and using the proceeds to pay down debt would result in a debt-to-total-assets ratio of 0.3. Choice "c" is incorrect. There is only $50,000 in debt to start, so issuing $80,000 in new equity and using the proceeds would remove debt entirely such that the debt-to-total assets ratio would be 0. Choice "d" is incorrect. There is only $50,000 in debt to start, so issuing $100,000 in new equity and using the proceeds would remove debt entirely such that the debt-to-total assets ratio would be 0.
Page 28 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
28. A-05170 What does beta measure in the capital asset pricing model? a.
The volatility of a stock relative to its competitors.
b.
The volatility of a stock relative to the market.
c.
The additional return required over the risk-free rate.
d.
Unsystematic risk.
Unit & Module to be Assigned To:
B-2, M-1
Representative Task:
BIII-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
10
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Beta (also referred to as beta coefficient) represents the risk (volatility) of an individual stock relative to the volatility of the overall market. A beta of 1 means the stock and the overall market have equal volatility, and a beta greater (less) than 1 means the stock is more (less) volatile than the market. Choice "a" is incorrect. Beta is not used to measure the volatility of a stock relative to its competitors. Choice "c" is incorrect. The risk (with beta as a component) is used to measure the additional return required over the risk-free rate; beta by itself does not equate to this return. Choice "d" is incorrect. Beta is used in the cost-of-equity calculation, which provides the expected return taking into systematic (rather than unsystematic) risk.
Page 29 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
29. A-05180 A company issued common stock and preferred stock. Projected growth rate of the common stock is 5 percent. The current quarterly dividend on preferred stock is $1.60. The current market price of the preferred stock is $80 and the current market price of the common stock is $95. What is the expected rate of return on the preferred stock? a.
2 percent
b.
7 percent
c.
8 percent
d.
13 percent
Unit & Module to be Assigned To:
B-2, M-1
Representative Task:
BIII-A1.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
9
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. The preferred stock pays dividends of $1.60 per quarter, or $6.40 per year. $6.40 annual dividends / $80 current market price = 8 percent. Choice "a" is incorrect. This choice uses the $1.60 quarterly dividend payment as an annual amount. Choice "b" is incorrect. This choice incorrectly uses the $95 common stock price as the denominator in the calculation. Choice "d" is incorrect. This choice assumes a much higher dividend or much lower stock price than appropriate.
Page 30 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
30. A-05195 A customer notified a company that the customer's did not reflect the most recent monthly payment. The company investigated the issue and determined that a clerk had mistakenly applied the customer's payments to a different customer's . Which of the following controls would help to prevent such an error? a.
Checksum.
b.
Field check.
c.
Completeness test.
d.
Closed-loop verification.
Unit & Module to be Assigned To:
B-6, M-3
Representative Task:
BIV-B1.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
25
Correct Answer Choice:
D
ANSWER: Choice "d" is correct. Closed-loop verification is a validation method that takes data entered into a system and uses it to retrieve and display other information to the accuracy of input data. In this scenario, the customer and the company can both receive system confirmation that the payment was made and applied to the correct place. Choice "a" is incorrect. This automatically calculates totals for data transmitted. This would not prevent the error of a clerk entering a payment into the wrong . Choice "b" is incorrect. A field check is an edit check that examines characters in a field to make sure that they reflect the correct field type. This would not prevent the error of a clerk entering a payment into the wrong . Choice "c" is incorrect. This is a data entry control whereby a system determines whether all of the data necessary for a specific transaction have been entered. This would not prevent the error of a clerk entering a payment into the wrong .
Page 31 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
31. A-05270 Which of the following is a financial measure of success in a balanced scorecard? a.
Market share.
b.
Sales growth.
c.
Cycle time.
d.
Staff morale.
Unit & Module to be Assigned To:
B-3, M-4
Representative Task:
BV-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
43
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Sales are reported on company financial statements and are often used as a measure of financial performance. Choice "a" is incorrect. Market share represents a goal or tactic (to grow market share) rather than a financial measure. Choice "c" is incorrect. Cycle time is a throughput measure captured as an internal business process on a balanced scorecard. Choice "d" is incorrect. Staff morale is definitely not a financial measure, but it may be captured on a balanced scorecard as a human resources/learning and innovation measure.
Page 32 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
32. A-05284 In order to increase the profit margin for a certain product, a company is planning to purchase a custommade machine for $5,000,000. It is anticipated that the introduction of the new machine will reduce the product's variable costs of labor and maintenance by $5.50 per unit and $0.95 per unit, respectively. The product manager estimates that 500,000 units of the product will be manufactured and sold each year with a product life cycle of two years, at which time the machine will be discarded with no salvage value. What is the company's total cost savings over the product's life cycle? a.
$725,000
b.
$1,450,000
c.
$3,225,000
d.
$6,450,000
Unit & Module to be Assigned To:
B-3, M-1
Representative Task:
BV-B1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
7
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Variable cost savings total $6,450,000 (500,000 units x ($5.50 + $0.95) x 2 years = $6,450,000). The machine will cost $5,000,000 to purchase, so the net savings = $6,450,000 – $5,000,000 = $1,450,000. Choice "a" is incorrect. This choice takes the net savings and equates it to an annual amount rather than the full cycle. Choice "c" is incorrect. This choice only calculates the annual variable cost savings. Choice "d" is incorrect. This choice only takes into the total variable cost savings, without considering the cost of the machine.
Page 33 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Simulations—Business
BUSINESS 2017 AIA Newly Released Sims
Page 1 of 5 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Simulations—Business
Task 85882_01 Unit & Sim # / Task Position Sim Task Name:
B2_Sim 1 (69) / Task 4 Written Communication (AIA R-2017)
Skill Level:
Analysis
Representative Task:
BIII-B2.4
Web Repo ID:
2092
Page 2 of 5 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Simulations—Business
Task 85882_01 (Solution) As you know, our provider for general liability insurance has offered us two payment options for coverage during this policy year. It is important to note that our policy year is aligned with both our fiscal year and, of course, the calendar year. There are advantages and disadvantages to both options from a working capital and financial statement perspective, which I will cover below. The first option is to pay the entire annual amount at the time of commitment, which for us would be approximately one month prior to the beginning of the policy period. So we will owe the full amount on December 1, with the policy year beginning on January 1. Paying the full up front has a negative impact to working capital from a pure cash flow perspective. We will book a prepaid asset for the full amount of the paid for up front on our balance sheet, and over the course of the year the prepaid asset will be reduced on a monthly basis as we expense the cost on the income statement. The second option entails paying 30 percent of the annual owed up front, with the remaining 70 percent payable (along with a 2 percent surcharge) over the full 12-month policy period. So in this scenario, we would pay 30 percent of the annual on December 1 and then we would pay the remaining 70 percent (plus a 2 percent surcharge) across the next 12 months. The benefit to this option relative to the first option is that we are able to conserve cash and protect working capital in the early part of the period, allowing us to use that excess cash in other places. However, we will end up paying more over the course of the year because of the surcharge. This surcharge will lead to greater monthly expenses and, therefore, lower net income relative to the first option. If we are looking at this purely from a cash flow and financial statement perspective, we have two very reasonable options. If we are in a good position from a cash flow perspective, then we can go with the first option as it will ultimately save us money in of pure outflows and lead to higher net income. If we need to conserve our cash up front or we have better places to deploy it, the second option would be best. I am available whenever you would like to discuss this further.
Page 3 of 5 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Simulations—Business
Task 88237_01 Unit & Sim # / Task Position Sim Task Name: Skill Level: Representative Task: Web Repo ID:
B6_Sim 1 (71) / Task 3 Written Communication (AIA R-2017) ing and Understanding BV-C2.1 2093
Page 4 of 5 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Simulations—Business
Task 88237_01 (Solution) After a thorough investigation into the increase in customer returns over the last six months, we have identified the primary driver as poor product quality. There are myriad causes for poor quality, and all need to be addressed, but there are also many solutions we can put into place that should help to reverse this trend and put the company into a better competitive position going forward. Poor product quality can result from problems in many places within a production process. From a human capital perspective, actions and behaviors by both management and by those who work for management can lead to poor quality. Poor planning, misguided incentives, lack of motivation, flawed decision making, and skill deficiencies are all examples of human capital issues that can negatively affect product quality. Machines can harm product quality because of wear and tear, poor maintenance, or improper utilization. Also, quality will suffer when poor-grade materials or the wrong materials are used for a given process. Failure to follow established procedures and/or outdated and inaccurate procedures are another cause of poor quality. In order to move forward and reverse this trend, we need to identify each of these problem areas and come up with effective and reasonable solutions. Investments in training, staff development, higher-quality machines and materials, and better defined processes are all issues that can be fixed. From an overall, entity-wide perspective, we should consider implementing total quality management. Within this process, we need to ensure that we are focusing on satisfying our customers. Key components of this process are continuous improvement, involving our workforce, delegating and empowering our workforce, and conducting quality audits and gap analysis. Improvement in quality will be reflected in a reduction in returns and will also help us reduce conformance costs (such as prevention and appraisal costs) and nonconformance costs (both internal and external failure costs). We can discuss the root causes of these poor-quality issues, as well as next steps toward solving them, when we next meet.
Page 5 of 5 ed to Andrea Rosillo (#818104)
BUSINESS 2017 AIA Newly Released MCQs
Page 1 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
2017 AIA Business Newly Released MCQs—Medium (Moderate) Rating
1. A-05000 Which of the following statements is true regarding internal control objectives of information systems? a.
Primary responsibility of viable internal control rests with the internal audit division.
b.
A secure system may have inherent risks due to management's analysis of trade-offs identified by cost-benefit studies.
c.
Control objectives primarily emphasize output distribution issues.
d.
An entity's corporate culture is irrelevant to the objectives.
Unit & Module to be Assigned To:
B-1, M-1
Representative Task:
BI-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
10
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. One of the limitations of even a well-designed internal control system is management's ability to override those controls. One reason management may override them is that the benefit of doing so exceeds the cost, which represents an inherent risk of even the strongest systems. Choice "a" is incorrect. Senior management and the board of directors have primary responsibility for establishing, implementing, and enforcing internal controls. Internal Audit is a partner in the process, but it does not have primary responsibility. Choice "c" is incorrect. Objectives within the internal control integrated framework include operations, reporting, and compliance objectives. Output distribution issues are just one aspect of what may be covered through the establishment of these objectives. Choice "d" is incorrect. The corporate culture (or "tone at the top") is extremely critical to the process of establishing and enforcing objectives.
Page 2 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
2. A-05001 Employees of an entity feel peer pressure to do the right thing; management appropriately deals with signs that problems exist and resolves the issues; and dealings with customers, suppliers, employees, and other parties are based on honesty and fairness. According to the COSO, the above scenario is indicative of which of the following? a.
Strategic goals.
b.
Operational excellence.
c.
Reporting reliability.
d.
Tone at the top.
Unit & Module to be Assigned To:
B-1, M-1
Representative Task:
BI-A2.3
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
6
Correct Answer Choice:
D
ANSWER: Choice "d" is correct. The "tone at the top" represents the culture of an organization in of the standards related to internal controls and conduct that senior management and the board of directors set for an entity. When employees are focused on doing the right thing, when management quickly addresses and resolves issues, and when fairness and honesty prevail in dealings with internal and external people, a positive tone for the organization is established. Choice "a" is incorrect. The items described in the question relate to the tone/culture of an organization rather than specific short- or long-term goals. Choice "b" is incorrect. Operational excellence relates to a desire to perform at the highest level, which is more of an objective and a goal than the "tone at the top." Choice "c" is incorrect. Reporting reliability is addressed as part of establishing reporting objectives rather than setting the tone at the top.
Page 3 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
3. A-05002 According to the COSO, which of the following identifies the group directly responsible for the implementation and development of the enterprise risk management framework? a.
Management.
b.
The board of directors.
c.
External auditors.
d.
Internal auditors.
Unit & Module to be Assigned To:
B-1, M-2
Representative Task:
BI-B1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
13
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. It is incumbent upon management to determine how the inevitable risks that an entity faces must be balanced with the desire to grow stakeholder value. Management is responsible for developing and implementing the enterprise risk management framework and process. Choice "b" is incorrect. The board of directors is responsible for the oversight of management, which includes assessing the work it is doing from an enterprise risk management standpoint and holding management able for its work. Choice "c" is incorrect. External auditors are parties from outside of an entity which will come in to evaluate the risk management process, along with internal controls and many other operational and reporting functions. External auditors are not tasked with developing and implementing an entity's risk management framework. Choice "d" is incorrect. Internal auditors are employees of an entity who serve to operate similarly to external auditors from an evaluation standpoint; they are not tasked with developing and implementing a risk management framework.
Page 4 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
4. A-05014 Which of the following organizations was established by the Sarbanes-Oxley Act of 2002 to control the auditing profession? a.
Information Systems Audit and Control Foundation (ISACF).
b.
IT Governance Institute (ITGI).
c.
Public Company ing Oversight Board (PCAOB).
d.
Committee of Sponsoring Organizations (COSO).
Unit & Module to be Assigned To:
B-1, M-3
Representative Task:
BI-C1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
27
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. Congress, through the Sarbanes-Oxley Act of 2002, created the PCAOB to oversee public company and broker/dealer audits. Choice "a" is incorrect. ISACF, which traces its origins to the 1970s, was developed for the purpose of building knowledge related to information technology governance and control. Choice "b" is incorrect. ITGI was formed in 1998 to serve as a think tank for global IT governance. Choice "d" is incorrect. The COSO is a private sector initiative that was established in the mid-1980s for the purpose of assessing fraudulent financial reporting. Both the Internal Control-Integrated Framework and the Enterprise Risk Management-Integrated Framework are COSO initiatives.
Page 5 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
5. A-05021 A government is most likely to reduce taxes on investments when: a.
The real exchange rate is expected to be unusually high.
b.
Inflation is expected to be unusually low.
c.
The gross domestic product is expected to be unusually high.
d.
Capital spending is expected to be unusually low.
Unit & Module to be Assigned To:
B-5, M-1
Representative Task:
BII-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
10
Correct Answer Choice:
D
ANSWER: Choice "d" is correct. Reducing taxes is a fiscal policy decision designed to increase disposable income and facilitate future spending and economic growth. Lower-than-expected capital spending can be addressed through lower taxes, which puts more money into the hands of businesses and consumers. Choice "a" is incorrect. Given their unpredictability and volatility, exchange rate fluctuations are unlikely to affect government decisions to raise or lower taxes. Choice "b" is incorrect. Lower-than-expected inflation means that the costs of goods and services will be more affordable for purchasers, implying that the government will not need to reduce taxes to generate economic activity. Choice "c" is incorrect. If GDP is growing faster than expected, the government does not need to reduce taxes to spur higher spending.
Page 6 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
6. A-05024 Which of the following statements is correct regarding an economy at the peak of the business cycle? a.
The economy will be in a static equilibrium.
b.
The economy will be at the natural rate of unemployment.
c.
Incomes will be stable.
d.
The rate of inflation will decrease.
Unit & Module to be Assigned To:
B-5, M-1
Representative Task:
BII-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
5
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. At the natural rate of unemployment, there is frictional, structural, and seasonal unemployment; cyclical unemployment is at 0 percent, which implies that the economy is operating at its highest potential level. Choice "a" is incorrect. The peak is a temporary state (to be followed by a contractionary phase), which implies that the economy will not remain static. Choice "c" is incorrect. Both costs and prices reach their highest levels at a peak. Although incomes are potentially rising during a peak, they will either level off or decline as the cycle moves into the contractionary phase. Choice "d" is incorrect. Price levels are likely to still be rising during a peak. Once the peak shifts to a contractionary phase, price levels may decline.
Page 7 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
7. A-05026 In which of the following situations would it be advantageous for a country to export a manufactured product? a.
The country's government prefers to be self-sufficient.
b.
The country has an absolute advantage in the production of a complementary product.
c.
The country has a comparative advantage in the production of the item.
d.
The country has a higher opportunity cost for production of the item.
Unit & Module to be Assigned To:
B-5, M-6
Representative Task:
BII-B1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
65
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. A comparative advantage stems from specializing in the trade and production of specific products. If a country is able to produce a product more efficiently and cost effectively than its peers, selling these products overseas offers a potential for higher profits. Choice "a" is incorrect. A self-sufficient government will not focus on exports and, in fact, may make it more difficult and costly for a company to export its goods. Choice "b" is incorrect. Absolute advantage refers to a company's ability to produce more output (relative to a set amount of resources) than its peers. The extent to which a company exports a good that is complementary will depend on the export strategy for the other good or goods with which it is sold. Choice "d" is incorrect. The higher the opportunity cost, the more likely it is that the company will shift its resources to other production options that will produce a greater return. Higher opportunity costs equate to lower competitive advantage.
Page 8 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
8. A-05028 The consensus of economic forecasts indicates that consumer prices are likely to increase because of increases in aggregate demand. Which of the following outcomes is most likely to occur as prices increase? a.
Quantity of output increases if there is capacity to produce.
b.
Unemployment increases.
c.
Profits fall if all costs are fixed.
d.
Profits rise even if costs increase.
Unit & Module to be Assigned To:
B-5, M-1
Representative Task:
BII-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
9
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. With increases in aggregate demand, both output and prices will increase. The demand curve shifts to the right, which results in a higher quantity of goods supplied. Choice "b" is incorrect. Higher economic activity (output) will tend to cause unemployment to decrease, as companies need more workers to meet the higher demand. Choice "c" is incorrect. If costs are fixed and prices are rising, profits will rise rather than fall. Choice "d" is incorrect. Profits may continue to rise, but only if sales exceed costs. If costs are increasing, sales have to increase by more than costs for profits to rise.
Page 9 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
9. A-05030 A U.S.-based company decides to invest capital in an emerging market operation that has a lower expected return rate compared to the expected return for an alternative domestic operation. Which of the following statements correctly s this decision? a.
Management expects the U.S. dollar to decline in value relative to the foreign location's currency.
b.
Management expects inflation to increase in the emerging market compared to the U.S. inflation rate.
c.
Management expects inflation to decrease in the U.S. compared to the foreign location's inflation rate.
d.
Management expects the U.S. dollar to strengthen in value relative to the foreign location's currency.
Unit & Module to be Assigned To:
B-1, M-5
Representative Task:
BII-C2.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
49
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. A declining local currency (here, the U.S. dollar) implies that the dollar becomes less expensive relative to foreign currency. Even though the expected percentage return is higher for the domestic operation, an investor will be able to take advantage of the strength of the foreign currency on the international investment relative to the dollar. Choice "b" is incorrect. Investors will want to purchase investments denominated in foreign currency when domestic inflation is higher (not lower) relative to the emerging market. Choice "c" is incorrect. Investors will want to purchase investments denominated in foreign currency when domestic inflation is higher (not lower) relative to the emerging market. Choice "d" is incorrect. An investor would be more inclined to purchase domestically if the expectation was that the U.S. dollar would strengthen relative to a foreign currency.
Page 10 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
10. A-05051 Which of the following quantitative factors, when compared to its industry average, could be an indicator of potential corporate failure? a.
High cash flow to total liabilities.
b.
High retained earnings to total assets.
c.
High fixed cost to total cost structure.
d.
High fixed assets to non-current liabilities.
Unit & Module to be Assigned To:
B-2, M-2
Representative Task:
BIII-A1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
18
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. When fixed costs are high relative to variable costs and total costs, the company's operating leverage is high. What this implies is that the company must generate enough in sales in order to meet its fixed obligations. This equates to higher risk and could cause the company to fail if sales are not high enough. Choice "a" is incorrect. High cash flow relative to liabilities would be a positive indicator for a corporation. Choice "b" is incorrect. Higher retained earnings are not indicative of potential corporate failure. Choice "d" is incorrect. Higher non-current assets (relative to noncurrent liabilities) are not indicative of potential corporate failure.
Page 11 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
11. A-05052 The main reason that a firm would strive to reduce the number of days sales outstanding is to increase: a.
s receivable.
b.
Cash.
c.
Cost of goods sold.
d.
Contribution margin.
Unit & Module to be Assigned To:
B-2, M-3
Representative Task:
BIII-B1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
26
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Days sales outstanding represents the amount of time it takes for a company to convert its s receivable into cash. Efforts to reduce this number are linked to a desire to increase cash (to collect it faster). Choice "a" is incorrect. A desire to increase s receivable would result in a days sales outstanding number that would increase rather than decrease. Choice "c" is incorrect. Cost of goods sold does not affect the days sales outstanding calculation. Choice "d" is incorrect. The contribution margin is equal to sales less variable costs; this does not relate to the days sales outstanding calculation.
Page 12 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
12. A-05053 A limitation of using the discounted payback method to evaluate a project is that it ignores which of the following? a.
Cash flows after the payback period.
b.
Duration of funds being tied up.
c.
A project's cost of capital.
d.
A project's breakeven point.
Unit & Module to be Assigned To:
B-2, M-9
Representative Task:
BIII-C1.2
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
88
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. For both the payback and discounted payback methods, cash flows that occur after the payback period are not ed for in the calculations. Once the initial investment is returned, future cash flows are not considered. Choice "b" is incorrect. The duration of funds being tied up are definitely considered, as this is what the discounted payback method is designed to measure. Choice "c" is incorrect. The cost of capital is considered, as this is used to discount each individual cash flow to present value. Choice "d" is incorrect. Determining the breakeven point (in of time) is the purpose of this method.
Page 13 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
13. A-05063 What should a company do when seeking competitive advantages in planning for the implementation of a new software system? a.
Design an optimal process and then align the software.
b.
Design the software to fit the existing processes.
c.
Direct manpower to the non-bottleneck process areas.
d.
Allow management to dictate processes.
Unit & Module to be Assigned To:
B-6, M-6
Representative Task:
BIV-E1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
52
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. The implementation of new software is often a great opportunity to not only assess the software's capabilities but also to revisit and ultimately optimize processes in order to align them with the software. Choice "b" is incorrect. Deg software to fit existing processes is often very costly and does not accommodate revisiting and optimizing processes in order to align them with the new software. Choice "c" is incorrect. Bottleneck process areas create more risk than non-bottleneck areas, which implies that the most efficient use of manpower is to direct it toward bottlenecks. Choice "d" is incorrect. A business process manager, along with subject matter experts, should determine the processes and how the software can be aligned to those processes.
Page 14 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
14. A-05154 A company has two departments and allocates all overhead costs based on department revenues. The following information applies: Department 1 revenue
$1,000,000
Department 2 revenue
1,500,000
Corporate overhead costs
250,000
Department overhead costs
175,000
What amount is the company's total overhead cost for Department 2? a.
$425,000
b.
$255,000
c.
$170,000
d.
$105,000
Unit & Module to be Assigned To:
B-3, M-3
Representative Task:
BV-B1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
31
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Total overhead costs are $425,000 (Corporate costs of $250,000 + Department costs of $175,000). If overhead is allocated based on revenue, then Department 1 will receive 40% of the overhead allocation ($1,000,000 / ($1,000,000 + $1,500,000) = 40%) and Department 2 will receive 60% of the allocation ($1,500,000 / ($1,000,000 + $1,500,000) = 60%). So for Department 2, $425,000 x 60% = $255,000. Choice "a" is incorrect. This amount represents the total amount of overhead to be allocated between both departments. Choice "c" is incorrect. This amount represents the amount of overhead allocated to Department 1. Choice "d" is incorrect. This amount is much less than the overhead to be allocated to both Departments 1 and 2.
Page 15 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
15. A-05155 Which of the following methods involves comparing a company's internal processes that need to be improved to those of external companies identified as being best in class? a.
Balanced scorecard.
b.
Benchmarking.
c.
Economic value added.
d.
Performance measurement.
Unit & Module to be Assigned To:
B-1, M-2
Representative Task:
BI-B2.2
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
20
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Benchmarking involves a company taking its own business metrics and processes and comparing them to those of other (similar) organizations that are considered the "best in class." The goal would be to determine what a company needs to do to mirror those considered the best. Choice "a" is incorrect. The balanced scorecard presents metrics covering multiple performance dimensions within a company. Choice "c" is incorrect. Economic value added (EVA) is used to determine whether performance is meeting standards. The calculation takes net operating profit after taxes and subtracts a "required return." Choice "d" is incorrect. Performance measurement involves collecting, assessing, and presenting both financial and nonfinancial data for an organization in order to determine whether its strategic goals are being met.
Page 16 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
16. A-05156 When selecting suppliers before implementing a just-in-time (JIT) purchasing system, a company must take extreme care because a JIT purchasing system: a.
Relies on suppliers to deliver products when needed.
b.
Depends on a great number of highly motivated suppliers.
c.
Shifts responsibility for order taking and fulfillment to the supplier.
d.
Relies on competent suppliers, which eliminates the need for backflush costing.
Unit & Module to be Assigned To:
B-2, M-4
Representative Task:
BIII-B2.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
34
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. Because JIT does not entail keeping a significant amount of inventory on hand, suppliers must be ready to provide products as soon as there is a need. Choice "b" is incorrect. JIT does not require a large number of very motivated suppliers in order to be successful; the key is that the suppliers used by a company must be ready to deliver the products when needed. Choice "c" is incorrect. The responsibility for order taking and fulfillment is not shifted to the supplier any more than it would be under a non-JIT system. Choice "d" is incorrect. Competent suppliers are needed in order for JIT to work, but backflush costing as a costing system is very common for JIT systems. Under backflush costing, the production of goods is typically completed before the costing process begins (which eliminates the cumbersome need to track costs throughout production).
Page 17 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
17. A-05157 Company management would like to calculate the breakeven point in sales dollars of its lone product, a farm combine-planter. The following cost information is available: Combine-planter unit selling price
$ 1,000
Variable manufacturing expenses per unit
800
Other variable expenses
100
Fixed manufacturing expenses
15,000
Marketing expense (fixed)
7,000
What amount is the company's breakeven point in sales? a.
$70,000
b.
$110,000
c.
$150,000
d.
$220,000
Unit & Module to be Assigned To:
B-4, M-2
Representative Task:
BV-D2.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
18
Correct Answer Choice:
D
ANSWER: Choice "d" is correct. The contribution margin = $1,000 – 800 – 100 = $100. The contribution margin ratio (10 percent) takes the contribution margin of $100 and divides it by the selling price of $1,000. The breakeven point in sales can be calculated using the contribution margin ratio and the following formula:
BE Point in Dollars =
Total Fixed Costs
= Contribution Margin Ratio
$22,000 0.10
Choices "a", "b", and "c" are incorrect, per the explanation above.
= $220,000
Page 18 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
2017 AIA Business Newly Released MCQs—Difficult (Hard) Rating
18. A-05158 According to the COSO, a primary purpose of monitoring internal control is to that the internal control system remains adequate to address changes in: a.
Risks.
b.
The law.
c.
Technology.
d.
Operating procedures.
Unit & Module to be Assigned To:
B-1, M-1
Representative Task:
BI-A2.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
7
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. Risks are fluid in that they regularly change in of likelihood and severity. In addition, new risks can arise while old risks can disappear. Internal controls should always be monitored for the purpose of addressing changes to risks. Choice "b" is incorrect. Although changes in the law may ultimately require adjusting internal controls, this is not a primary purpose for monitoring. Choice "c" is incorrect. Technology changes regularly, but this is not a primary purpose for monitoring internal controls. Choice "d" is incorrect. Operating procedure changes are managed as part of the existing control activities component of internal control.
Page 19 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
19. A-05159 The materials manager of a warehouse is given a new product line to manage with new inventory control procedures. Which of the following sequences of the COSO internal control monitoring-for-change continuum is affected by the new product line? a.
Control baseline but not change management.
b.
Change management but not control baseline.
c.
Neither control baseline nor change management.
d.
Both control baseline and change management.
Unit & Module to be Assigned To:
B-1, M-1
Representative Task:
BI-A2.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
7
Correct Answer Choice:
D
ANSWER: Choice "d" is correct. The COSO identifies four stages of the change continuum beginning with control baseline, followed by change identification, change management, and then control validation/update. The control baseline is the starting point at which management can understand the design of the internal control system and whether controls have been put in place to accomplish the organization's internal control objectives. Change management occurs as needed adjustments to the internal control system are implemented. Because a new product line is now under the purview of the manager, this will affect not only the baseline but also the change management sequence. Choices "a", "b", and "c" are incorrect per the explanation above.
Page 20 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
20. A-05160 According to the COSO, which of the following differences relevant to the risk-assessment process is most likely to exist between a large entity and a small entity? a.
The CEO of a small entity is more likely than the CEO of a large entity to be attuned to risks arising from internal factors through hands-on involvement with all levels of personnel.
b.
The risk-assessment process in a small entity is more structured than in a large one because of the nature of some of the internal control components in a small entity.
c.
An owner-manager of a small entity will not normally learn about risks arising from external factors through direct with customers, suppliers, and other outsiders, whereas in large entities this process is part of the entity's primary way of identifying new risk.
d.
Risk assessment in a small entity, as opposed to that in a large entity, can be problematic to implement because the in-depth involvement of the CEO and other key managers is a conflict of interest that must be addressed separately in the internal control assessment process.
Unit & Module to be Assigned To:
B-1, M-2
Representative Task:
BI-B2.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
20
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. A CEO is much more likely to be familiar with individual people and processes within a small entity. Along with that familiarity will be an understanding of risks associated with internal factors. Larger entities are challenging to manage because a CEO is more likely to primarily work with direct reports (CFO, CIO, etc.) rather than working hands-on with all personnel, simply because of the scope of the operation. Choice "b" is incorrect. A larger entity is more likely to have a structured risk-assessment process, as smaller entities are easier to manage in more of a fluid, ad hoc manner. Choice "c" is incorrect. With small entities, the owner-manager will often work directly with external parties, such as suppliers and customers. Through these interactions, risks associated with external factors can be identified and assessed. Choice "d" is incorrect. Because conflicts of interest inherently represent risks, they would be identified and managed as part of the risk-assessment process.
Page 21 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
21. A-05161 According to the COSO, the presence of a written code of conduct provides for a control environment that can: a.
Override an entity's history and culture.
b.
Encourage teamwork in the pursuit of an entity's objectives.
c.
Ensure that competent evaluators are implementing and monitoring internal controls.
d.
that information systems are providing persuasive evidence of the effectiveness of internal controls.
Unit & Module to be Assigned To:
B-1, M-3
Representative Task:
BI-C1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
30
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. A written code of conduct helps management set the tone for the organization; its existence promotes (among other things) honest/ethical conduct, teamwork, compliance, and appropriate disclosure. Choice "a" is incorrect. Overriding history and culture definitely is not the intent of having a code of conduct. Choice "c" is incorrect. A code of conduct will not help to ensure that a company has competent evaluators implementing and monitoring internal controls. Choice "d" is incorrect. Information systems are addressed independently, outside of a written code of conduct.
Page 22 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
22. A-05162 Which of the following statements is correct regarding the requirements of the Sarbanes-Oxley Act of 2002 for an issuer's board of directors? a.
Each member of the board of directors must be independent from management influence, based on the member's prior and current activities, economic and family relationships, and other factors.
b.
The board of directors must have an audit committee entirely composed of who are independent from management influence.
c.
The majority of of the board of directors must be independent from management influence.
d.
The board of directors must have a compensation committee, a nominating committee, and an audit committee, each of which is entirely composed of independent .
Unit & Module to be Assigned To:
B-1, M-3
Representative Task:
BI-C1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
27
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Per Sarbanes-Oxley, an issuer's board must establish an audit committee composed entirely of who are independent and not influenced by management. Choice "a" is incorrect. Independence is not required for every member of the board. Choice "c" is incorrect. Per Sarbanes-Oxley, independence relates to compensation received from the issuer and affiliation, not management influence. Choice "d" is incorrect. An audit committee is a requirement, but "compensation" and "nominating" committees are not required.
Page 23 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
23. A-05163 A country reduces its rate of monetary growth. Which of the following is the expected result for the country's economy? a.
Higher net exports.
b.
Higher investment.
c.
Lower GDP growth.
d.
Lower interest rates.
Unit & Module to be Assigned To:
B-5, M-2
Representative Task:
BII-A1.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
28
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. Monetary growth relates to an increase in the money supply. If the money supply declines, this will lead to higher interest rates, a reduction in firm investment and household consumption, a decrease in aggregate demand, and a reduction in GDP. Choice "a" is incorrect. Higher net exports are indicative of an increase in GDP (economic growth). The effect on GDP will be negative if monetary growth slows or declines. Choice "b" is incorrect. A reduction in monetary growth will lead to lower rather than higher investment. Choice "d" is incorrect. A reduction in monetary growth will lead to higher rather than lower interest rates.
Page 24 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
24. A-05164 Which of the following changes would most effectively halt a period of inflation? a.
Decreasing interest rates by a large amount.
b.
Decreasing savings by a small amount.
c.
Increasing interest rates by a large amount.
d.
Increasing savings by a small amount.
Unit & Module to be Assigned To:
B-5, M-1
Representative Task:
BII-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
10
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. Increasing interest rates reduces aggregate demand, which in turn will reduce output (GDP) and lower prices. Choice "a" is incorrect. Decreasing interest rates increases aggregate demand, which in turn will increase output (GDP) and raise prices. Choices "b" and "d" are incorrect. Changing savings by small amounts is unlikely to have a major effect on price levels.
Page 25 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
25. A-05166 Which of the following is the most likely result of imposing tariffs to increase domestic employment? a.
A long-run reallocation of workers from export industries to protected domestic industries.
b.
A short-run increase in domestic employment in import industries from export industries.
c.
A decrease in the tariff rates of foreign nations.
d.
A decrease in consumer prices in the domestic market.
Unit & Module to be Assigned To:
B-5, M-6
Representative Task:
BII-B1.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
67
Correct Answer Choice:
A
ANSWER: Choice "a" is correct. A tariff is a tax imposed on imported goods and services. One of the desired effects of implementing a tariff is that if imported goods and services become more expensive, companies and individuals will be more likely to produce domestically—thereby increasing domestic employment. Taxes will have a negative effect on international business, thereby increasing domestic business. Workers will be needed to meet the demand domestically. Choice "b" is incorrect. Tariffs on imported goods will likely result in a short-run decrease in domestic employment in import industries. Choice "c" is incorrect. An increase in tariffs implemented domestically will likely lead to an increase in tariff rates of foreign nations. Choice "d" is incorrect. If anything, higher tariffs and increases in domestic employment will lead to higher consumer prices as costs increase and sales must increase in order to maintain profits.
Page 26 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
26. A-05167 A company considers investing $20 million in a foreign company whose local currency is under pressure. The company suspects that the exchange rate may fluctuate soon. The exchange rate at the time of the investment is 2.57 to $1.00. After the investment, the exchange rate changes to 3.15 to $1.00. What is the change in the value of the company's investment in U.S. dollars? a.
18.4 percent increase.
b.
18.4 percent decrease.
c.
22.6 percent increase.
d.
22.6 percent decrease.
Unit & Module to be Assigned To:
B-1, M-5
Representative Task:
BII-C1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
49
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. An initial investment of $20 million is worth 51,400,000 in foreign currency based on an exchange rate of 2.57 to $1.00. After the exchange rate change (3.15 to $1.00), 51,400,000 is worth $16,317,460. A decline from $20,000,000 to $16,317,460 represents a decline of $3,682,540, or 18.4 percent. Choice "a" is incorrect. The decline in the foreign currency relative to the U.S. dollar hurt the company, as the investment denominated in the foreign currency lost value. Choice "c" is incorrect. The foreign currency lost value relative to the U.S. dollar, which causes the company's investment to decline. Choice "d" is incorrect. This choice incorrectly compares the decline of $3,682,540 to the new value in U.S. dollars of $16,317,460.
Page 27 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
27. A-05168 A corporation has $50,000 in equity and a debt-to-total-assets ratio of 0.5. The firm wants to reduce this ratio to 0.2 by selling new common stock and using the proceeds to repay principal on outstanding longterm debt. What amount of additional equity financing must the corporation obtain to accomplish this objective? a.
$20,000
b.
$30,000
c.
$80,000
d.
$100,000
Unit & Module to be Assigned To:
B-4, M-3
Representative Task:
BV-D2.3
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
33
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Because Total assets = Debt + Equity, the debt-to-total assets ratio can be restated as follows: Debt / (Debt + Equity). If the current ratio is equal to 0.5, then debt must be equal to $50,000. $50,000 in Debt / ($50,000 in debt + $50,000 in equity) = 0.5. By issuing an additional $30,000 in equity and using the proceeds to pay down debt, equity increases to $80,000 and debt decreases to $20,000. The ratio with the new numbers is calculated as follows:
Debt − to − total − assets =
$20,000 ($20,000+$80,000)
= 0.2
Choice "a" is incorrect. Issuing $20,000 in equity and using the proceeds to pay down debt would result in a debt-to-total-assets ratio of 0.3. Choice "c" is incorrect. There is only $50,000 in debt to start, so issuing $80,000 in new equity and using the proceeds would remove debt entirely such that the debt-to-total assets ratio would be 0. Choice "d" is incorrect. There is only $50,000 in debt to start, so issuing $100,000 in new equity and using the proceeds would remove debt entirely such that the debt-to-total assets ratio would be 0.
Page 28 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
28. A-05170 What does beta measure in the capital asset pricing model? a.
The volatility of a stock relative to its competitors.
b.
The volatility of a stock relative to the market.
c.
The additional return required over the risk-free rate.
d.
Unsystematic risk.
Unit & Module to be Assigned To:
B-2, M-1
Representative Task:
BIII-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
10
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Beta (also referred to as beta coefficient) represents the risk (volatility) of an individual stock relative to the volatility of the overall market. A beta of 1 means the stock and the overall market have equal volatility, and a beta greater (less) than 1 means the stock is more (less) volatile than the market. Choice "a" is incorrect. Beta is not used to measure the volatility of a stock relative to its competitors. Choice "c" is incorrect. The risk (with beta as a component) is used to measure the additional return required over the risk-free rate; beta by itself does not equate to this return. Choice "d" is incorrect. Beta is used in the cost-of-equity calculation, which provides the expected return taking into systematic (rather than unsystematic) risk.
Page 29 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
29. A-05180 A company issued common stock and preferred stock. Projected growth rate of the common stock is 5 percent. The current quarterly dividend on preferred stock is $1.60. The current market price of the preferred stock is $80 and the current market price of the common stock is $95. What is the expected rate of return on the preferred stock? a.
2 percent
b.
7 percent
c.
8 percent
d.
13 percent
Unit & Module to be Assigned To:
B-2, M-1
Representative Task:
BIII-A1.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
9
Correct Answer Choice:
C
ANSWER: Choice "c" is correct. The preferred stock pays dividends of $1.60 per quarter, or $6.40 per year. $6.40 annual dividends / $80 current market price = 8 percent. Choice "a" is incorrect. This choice uses the $1.60 quarterly dividend payment as an annual amount. Choice "b" is incorrect. This choice incorrectly uses the $95 common stock price as the denominator in the calculation. Choice "d" is incorrect. This choice assumes a much higher dividend or much lower stock price than appropriate.
Page 30 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
30. A-05195 A customer notified a company that the customer's did not reflect the most recent monthly payment. The company investigated the issue and determined that a clerk had mistakenly applied the customer's payments to a different customer's . Which of the following controls would help to prevent such an error? a.
Checksum.
b.
Field check.
c.
Completeness test.
d.
Closed-loop verification.
Unit & Module to be Assigned To:
B-6, M-3
Representative Task:
BIV-B1.2
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
25
Correct Answer Choice:
D
ANSWER: Choice "d" is correct. Closed-loop verification is a validation method that takes data entered into a system and uses it to retrieve and display other information to the accuracy of input data. In this scenario, the customer and the company can both receive system confirmation that the payment was made and applied to the correct place. Choice "a" is incorrect. This automatically calculates totals for data transmitted. This would not prevent the error of a clerk entering a payment into the wrong . Choice "b" is incorrect. A field check is an edit check that examines characters in a field to make sure that they reflect the correct field type. This would not prevent the error of a clerk entering a payment into the wrong . Choice "c" is incorrect. This is a data entry control whereby a system determines whether all of the data necessary for a specific transaction have been entered. This would not prevent the error of a clerk entering a payment into the wrong .
Page 31 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
31. A-05270 Which of the following is a financial measure of success in a balanced scorecard? a.
Market share.
b.
Sales growth.
c.
Cycle time.
d.
Staff morale.
Unit & Module to be Assigned To:
B-3, M-4
Representative Task:
BV-A1.1
Skill Level (Must be R&U or Application Only):
R&U
Page Reference:
43
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Sales are reported on company financial statements and are often used as a measure of financial performance. Choice "a" is incorrect. Market share represents a goal or tactic (to grow market share) rather than a financial measure. Choice "c" is incorrect. Cycle time is a throughput measure captured as an internal business process on a balanced scorecard. Choice "d" is incorrect. Staff morale is definitely not a financial measure, but it may be captured on a balanced scorecard as a human resources/learning and innovation measure.
Page 32 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Questions—Business
32. A-05284 In order to increase the profit margin for a certain product, a company is planning to purchase a custommade machine for $5,000,000. It is anticipated that the introduction of the new machine will reduce the product's variable costs of labor and maintenance by $5.50 per unit and $0.95 per unit, respectively. The product manager estimates that 500,000 units of the product will be manufactured and sold each year with a product life cycle of two years, at which time the machine will be discarded with no salvage value. What is the company's total cost savings over the product's life cycle? a.
$725,000
b.
$1,450,000
c.
$3,225,000
d.
$6,450,000
Unit & Module to be Assigned To:
B-3, M-1
Representative Task:
BV-B1.1
Skill Level (Must be R&U or Application Only):
Application
Page Reference:
7
Correct Answer Choice:
B
ANSWER: Choice "b" is correct. Variable cost savings total $6,450,000 (500,000 units x ($5.50 + $0.95) x 2 years = $6,450,000). The machine will cost $5,000,000 to purchase, so the net savings = $6,450,000 – $5,000,000 = $1,450,000. Choice "a" is incorrect. This choice takes the net savings and equates it to an annual amount rather than the full cycle. Choice "c" is incorrect. This choice only calculates the annual variable cost savings. Choice "d" is incorrect. This choice only takes into the total variable cost savings, without considering the cost of the machine.
Page 33 of 33 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Simulations—Business
BUSINESS 2017 AIA Newly Released Sims
Page 1 of 5 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Simulations—Business
Task 85882_01 Unit & Sim # / Task Position Sim Task Name:
B2_Sim 1 (69) / Task 4 Written Communication (AIA R-2017)
Skill Level:
Analysis
Representative Task:
BIII-B2.4
Web Repo ID:
2092
Page 2 of 5 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Simulations—Business
Task 85882_01 (Solution) As you know, our provider for general liability insurance has offered us two payment options for coverage during this policy year. It is important to note that our policy year is aligned with both our fiscal year and, of course, the calendar year. There are advantages and disadvantages to both options from a working capital and financial statement perspective, which I will cover below. The first option is to pay the entire annual amount at the time of commitment, which for us would be approximately one month prior to the beginning of the policy period. So we will owe the full amount on December 1, with the policy year beginning on January 1. Paying the full up front has a negative impact to working capital from a pure cash flow perspective. We will book a prepaid asset for the full amount of the paid for up front on our balance sheet, and over the course of the year the prepaid asset will be reduced on a monthly basis as we expense the cost on the income statement. The second option entails paying 30 percent of the annual owed up front, with the remaining 70 percent payable (along with a 2 percent surcharge) over the full 12-month policy period. So in this scenario, we would pay 30 percent of the annual on December 1 and then we would pay the remaining 70 percent (plus a 2 percent surcharge) across the next 12 months. The benefit to this option relative to the first option is that we are able to conserve cash and protect working capital in the early part of the period, allowing us to use that excess cash in other places. However, we will end up paying more over the course of the year because of the surcharge. This surcharge will lead to greater monthly expenses and, therefore, lower net income relative to the first option. If we are looking at this purely from a cash flow and financial statement perspective, we have two very reasonable options. If we are in a good position from a cash flow perspective, then we can go with the first option as it will ultimately save us money in of pure outflows and lead to higher net income. If we need to conserve our cash up front or we have better places to deploy it, the second option would be best. I am available whenever you would like to discuss this further.
Page 3 of 5 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Simulations—Business
Task 88237_01 Unit & Sim # / Task Position Sim Task Name: Skill Level: Representative Task: Web Repo ID:
B6_Sim 1 (71) / Task 3 Written Communication (AIA R-2017) ing and Understanding BV-C2.1 2093
Page 4 of 5 ed to Andrea Rosillo (#818104)
2017 AIA Newly Released Simulations—Business
Task 88237_01 (Solution) After a thorough investigation into the increase in customer returns over the last six months, we have identified the primary driver as poor product quality. There are myriad causes for poor quality, and all need to be addressed, but there are also many solutions we can put into place that should help to reverse this trend and put the company into a better competitive position going forward. Poor product quality can result from problems in many places within a production process. From a human capital perspective, actions and behaviors by both management and by those who work for management can lead to poor quality. Poor planning, misguided incentives, lack of motivation, flawed decision making, and skill deficiencies are all examples of human capital issues that can negatively affect product quality. Machines can harm product quality because of wear and tear, poor maintenance, or improper utilization. Also, quality will suffer when poor-grade materials or the wrong materials are used for a given process. Failure to follow established procedures and/or outdated and inaccurate procedures are another cause of poor quality. In order to move forward and reverse this trend, we need to identify each of these problem areas and come up with effective and reasonable solutions. Investments in training, staff development, higher-quality machines and materials, and better defined processes are all issues that can be fixed. From an overall, entity-wide perspective, we should consider implementing total quality management. Within this process, we need to ensure that we are focusing on satisfying our customers. Key components of this process are continuous improvement, involving our workforce, delegating and empowering our workforce, and conducting quality audits and gap analysis. Improvement in quality will be reflected in a reduction in returns and will also help us reduce conformance costs (such as prevention and appraisal costs) and nonconformance costs (both internal and external failure costs). We can discuss the root causes of these poor-quality issues, as well as next steps toward solving them, when we next meet.
Page 5 of 5 ed to Andrea Rosillo (#818104)
Related Documents 3m3m1z
Bec - 2017 Aia Released Questions.pdf 48d13
November 2022 0
2013 Aia Newly Released Questions Bec 3uk7
November 2019 44
Aud - 2017 Aia Released Questions.pdf 5q594i
October 2022 0
2015 Aia Released Questions Aud 1k1s3i
October 2019 76
2013 Aia Released Aud Mcqs 1v2j6x
April 2020 25
Audit 2015 Aia Released Question 1k50v
October 2019 44More Documents from "Ahmed" 174su
A Study And Survey Of Ofdm Versus Cofdm 4n6p4y
November 2019 113
6l6m1j
November 2019 172
6l6m1j
February 2022 0
Ade-422-423-424-workshop-manual-abby.pdf 6o6s1p
December 2021 0
Bw75h 4i6m42
September 2022 0