Series: NOV 2018

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  • 15 Marks

CSME – Nov 2018 – L2 – Q7 – Corporate Governance

Provide a defence for the unitary board structure, outline core roles, and discuss the composition and size of the board.

It is important that, as a member of the board of directors of a company, you have a good understanding of the nature, types, and structures of a board.

You are required to:
a. Provide a defence for the unitary board structure. (5 Marks)
b. Outline the core roles of a board of directors. (5 Marks)
c. Provide a broad overview of the composition and size of a unitary board of directors. (5 Marks)

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  • 15 Marks

CSME – Nov 2018 – L2 – Q6 – Corporate Strategy Formulation

Explain the BCG Model with a diagram to analyze a firm's business portfolio, detailing the four product categories.

As part of a training session in strategic management, deploy a diagram to explain how a firm would use the Boston Consulting Group (BCG) model to analyze its business portfolio. Explain each category of products identified in the BCG model.

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  • 15 Marks

CSME – Nov 2018 – L2 – Q5 – Ethics in Business

Discuss the six stages in handling ethical conflicts based on ICAN's professional code of conduct.

You have been invited to facilitate a session on how to deal with ethical conflicts based on the Institute of Chartered Accountants of Nigeria code of professional conduct. Discuss the six stages in handling ethical conflicts.

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  • 20 Marks

CSME – Nov 2018 – L2 – Q4 – Ethics in Business

Discuss ethical considerations for accountants, actions to serve the public interest, and the nature and purpose of a corporate code of ethics.

There is an increasing demand on professional accountants to pay close attention to ethical standards as they carry out their professional duties. This requires, among other considerations, that accountants act professionally and in the public interest. They are also expected to abide by the code of ethics of their profession and the corporate code of ethics of the organization in which they work.

Required:

a. Discuss the ethical considerations a professional accountant should attend to in the discharge of professional duties. (6 Marks)

b. What specific actions are you expected to take in order to serve the public interest? (5 Marks)

c. Discuss the nature and purpose of corporate code of ethics. (9 Marks)

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  • 20 Marks

CSME – Nov 2018 – L2 – Q3 – Risk Management and Corporate Strategy

Explain the processes of identifying, assessing, measuring, and prioritizing risks, and discuss the impact on stakeholders.

Success and profit maximization in business are premised on factors that include the ability to identify, assess, and measure risks. As a risk manager, how would you explain the following to a group of prospective entrepreneurs in ways that would adequately equip them to deal with operational, business, and strategic risks?

a. Risk identification (4 Marks)
b. The impact of risk on any four stakeholders (4 Marks)
c. Assessing risks: impact and probability (4 Marks)
d. Measuring risks (4 Marks)
e. Prioritizing risks (4 Marks)

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  • 20 Marks

CSME – Nov 2018 – L2 – Q2 – Corporate Governance

Identify five key corporate governance issues for expansion and principles of good corporate governance for PKL Restaurants Limited.

PKL Restaurants Limited was established in 1995 and now has 12 branches in different parts of Lagos. The company wants to expand its operations to Abuja and Port Harcourt. Consequently, it seeks to restructure the business and build structures for good corporate governance.

Required:

a. Develop a proposal highlighting five key issues of corporate governance. (10 Marks)

b. Evaluate five principles of good corporate governance that the company should adhere to. (10 Marks)

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  • 5 Marks

CSME – Nov 2018 – L2 – Q1b – Business-Level Strategies

Describe two key risks associated with adopting a cost leadership strategy in business.

Provide a detailed account of two of the risks business entities might face by adopting a strategy of cost leadership.

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  • 25 Marks

CSME – Nov 2018 – L2 – Q1a – Environmental Analysis

Perform a SWOT analysis using a Mini Resource Audit and Porter's Five Forces for Igbadun Nigeria Limited in the online streaming business.

Igbadun Nigeria Limited is a private limited liability company engaged in the business of online content streaming to registered subscribers through a dedicated website “igbadun.com”. The company’s content offerings include movies, TV episodes, cartoon series, educational series, documentaries, and reality shows.

The subscriber base growth rate of Igbadun has been phenomenal, jumping from about 3,000 in 2013 to 30,000 at the end of 2017. This is despite the fact that the industry is relatively new in Nigeria. The growth has led to an increase in revenue from N72 million in 2013 to N450 million by the year ended 31 December 2017. However, the only source of revenue to the company is customer subscriptions.

The impressive performance of Igbadun Nigeria Limited has been attributed to several factors, including:

  • Increasing internet usage;
  • Increased patronage of streamed online programs;
  • Improved access to the internet at a reduced cost;
  • Affordability of internet-enabled devices suitable for viewing online video content;
  • Cost reduction strategies and a very affordable subscription rate, which has been reduced from N2,000 in 2013 to N1,500 in 2017. This is the second-lowest rate in the industry;
  • Aggressive marketing strategy and investment in advertising;
  • Reduction in marketing costs as a percentage of revenue from 16% in 2013 to 12.8% in 2017;
  • Growth of gross subscribers by more than 100% per annum;
  • Investment of over 60% of its earnings for growth and development, especially in purchasing the best hardware and software available;
  • Aggressive R & D policy that has led to in-house development of most of its software, with all of them duly patented;
  • Effective Human Resource Management strategy that has helped to attract, motivate, train, and retain highly qualified and experienced manpower;
  • Management team of highly experienced personnel.

A report recently released by Arthur Baker and Company, a reputable consulting firm in Nigeria, predicted that the demand for online program streaming in Nigeria will grow significantly to 5 million by 2020. Consequently, existing rivals, such as Netcom and other smaller competitors, are jostling to gain competitive advantage. The relatively liberal legal requirements for entry have also facilitated an influx of new entrants into the industry. Netflox, the world’s biggest provider of online program streaming service, recently commenced operations in Nigeria.

Copyright activists recently proposed a bill to the National Assembly, allowing online program streaming providers to stream new releases only after two months of release. This bill will adversely affect the subscription revenue of igbadun.com if passed into law.

A major part of Igbadun’s subscription revenue is received through online payments using debit cards. However, a recent report by an independent consultant shows a decline in the use of online payment platforms due to increased security concerns. This has the potential to hurt Igbadun’s revenue stream.

Igbadun is also struggling to compete with other movie entertainment media such as cable TV, DVDs, and cinemas. The most worrisome for the company has been DVDs. The activities of pirates have made the price of DVDs for new releases as low as N500 each. If this continues unabated, the company risks losing its subscriber base.

Despite these challenges, Igbadun plans to grow its subscriber base to 200,000 by the end of 2020.

Required:

a. With the aid of a Mini Resource Audit and Porter’s Five Forces Model, prepare a SWOT analysis for the management of Igbadun Nigeria Limited.

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  • 15 Marks

PSAF – Nov 2018 – L2 – Q7 – Fiscal Policy and Public Finance

Discuss the objectives of an ideal intergovernmental fiscal system and the problems facing intergovernmental fiscal relations in Nigeria.

“There are critical issues and problems with decentralisation of government and intergovernmental fiscal relations in Nigeria.”

Required:
a. The main objectives of an ideal system of fiscal relations among sub-national units in a federation.
(6 Marks)
b. Three problems of intergovernmental fiscal relations in Nigeria.
(9 Marks)

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  • 15 Marks

PSAF – Nov 2018 – L2 – Q6 – Fiscal Policy and Public Finance

Discuss the concept of market failure and provide cases justifying government intervention in the economy.

he need for government intervention in the economy is justified on the basis of market failure. In particular, the intervention has become inevitable in view of some practical situations for which the market is rather unhelpful.

Required:
a. Discuss the notion of “market failure” as a basis for government intervention.
(5 Marks)
b. Provide four illustrative cases to justify government intervention in the Nigerian economy.
(10 Marks)

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  • 20 Marks

AA – Nov 2018 – L2 – Q3 – Planning an Audit

Explains materiality in accordance with ISA 320 and addresses steps for materiality and receivable circularization in an audit.

Holy Family Limited is a trading company that deals in furniture. The company is a major distributor to Happy Couples Limited that manufactures the furniture. The turnover of the company as at December 31, 2017, was ₦120,000,000. Also, in the statement of financial position is a figure of ₦2,500,000 that represents trade receivables. The auditor informs the Managing Director of the need to circularize the debtors. The Managing Director feels indifferent to circularization, saying that the figure of ₦2,500,000 is not material with a turnover of ₦120,000,000.

Required:
a. As an auditor, explain to the Managing Director the concept of materiality in accordance with ISA 320.
(5 Marks)

b. State the steps you are expected to take as regards materiality when planning and performing an audit.
(5 Marks)

c. Explain to him why you should confirm receivable balances through circularization.
(3 Marks)

d. If you decide to circularize only a sample of receivables, list the types of accounts that should not be overlooked in selecting the sample.
(7 Marks)

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  • 20 Marks

AA – Nov 2018 – L2 – Q2 – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Identify and explain conflict of interest and specific safeguards when dealing with competing clients.

Your firm has been the financial consultants to West Africa Dairies Company Plc (WADCO) for three years. A competitor within the industry has now approached your firm to become their financial consultant.

Required:
a. Identify and explain the conflict of interest that may arise if your firm takes up the competitor’s engagement.
(6 Marks)

b. Explain the specific safeguards that your firm could apply if you are to accept the offer.
(14 Marks)

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  • 20 Marks

AA – Nov 2018 – L2 – Q1b – Internal Control Systems

Identifies weaknesses in ACB Limited's internal control and provides recommendations for audit tests to detect errors and frauds.

ACB Limited is a transport and logistics company which commenced business on January 1, 2012 and has over 250 trucks in its fleet. The operations of the company cover all the six geopolitical zones in the country. The company operates an in-house workshop as a separate business unit under the supervision of a Workshop Manager and it handles repairs of the company’s trucks and other third-party vehicles as well. All the spare parts needed for the repairs of trucks are supplied directly from the company’s central store located very close to the workshop. The company purchases spare parts mostly in bulk and keeps them in a central store for supply to the workshop when the need arises. The following procedures are followed from the purchase stage to the consumption of spare parts for repairs of trucks:

Request for the spare parts to be purchased is sent by the storekeeper to the procurement department on monthly basis for approval. The storekeeper then collects an IOU and goes to the open market together with a mechanic to purchase the items. Cash invoices collected for the spare parts purchased are attached with the IOU retirement form which is submitted to the Accountant at the end of each month. The Accountant makes entries of the spare parts purchased into the ledger on a monthly basis.

The mechanic in charge of the repair of a damaged truck sends to the storekeeper a memo requesting the supply of spare parts. The mechanic collects the spare parts from the store on the basis of the memo he sent to the storekeeper. He prepares a list of items supplied on a monthly basis and sends it to the Accountant for posting into the ledger. The spare parts supplied are posted by the Accountant into the spare parts consumption ledger at the end of each month. The storekeeper takes inventory of the spare parts in the store at the end of each year jointly with some mechanics who provide technical advice during the exercise.

The spare parts collected are used by the mechanic in charge of the damaged truck brought for repairs. The mechanics in the workshop prepare a list of spare parts collected and used for the various trucks repaired by each of them for submission to the Workshop Manager. The Workshop Manager prepares and sends his monthly report which contains a list of trucks repaired and the spare parts consumed to the Managing Director.

Your firm was appointed to carry out an audit of the company’s accounts for the last four years of operation. From the preliminary discussion the Managing Director had with you, you were informed that the operations of the workshop in the last four years resulted in a loss which he said was a result of a lack of controls in the handling of the purchase, storage, and consumption of spare parts in the workshop.

Required:
i. Identify three internal control weaknesses in the above scenario with respect to the procurement of spare parts, storage, and supply of spare parts in the store, and the consumption of spare parts in the workshop. (9 Marks)

ii. Recommend appropriate internal controls that would address the identified weaknesses. (6 Marks)

iii. Explain the audit tests to be carried out to assess if the recommended controls would work effectively to prevent or correct errors and detect occurrences of fraud in the system. (5 Marks)

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  • 10 Marks

AA – Nov 2018 – L2 – Q1a – Internal Control Systems

Explain control environment and control procedures and discuss the five elements of internal control as per ISA 315.

Auditors are required by International Standards on Auditing (ISA) to understand and assess a client’s system of internal control. Consequently, auditors must use their judgment to determine whether to test all or part of the internal control system as part of their response to the assessed risk of material misstatement in the financial statements to be audited.

Required:
i. Explain the following terms:

  • Control environment
  • Control procedures
    (5 Marks)

ii. State and explain the five elements of internal control as identified by ISA 315.
(5 Marks)

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  • 15 Marks

PM – Nov 2018 – L2 – Q7 – Performance Measurement Systems

Detailed characteristics of strategic, tactical, and operational information in an organization.

Information within an organisation can be analysed into the following three levels:

  • Strategic information
  • Tactical information
  • Operational information

Required:
Give detailed characteristics of each type of the above information.

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  • 15 Marks

PM – Nov 2018 – L2 – Q6a – Risk Management

Analyze threats due to patent expiration and recommend strategies to maintain profitability for DDD Ltd.

DDD Limited is a relatively small, specialist manufacturer of chemicals used in the pharmaceutical industry. It does not manufacture pharmaceutical products itself but modifies raw materials sourced from large chemical companies using patented processes before selling them to pharmaceutical companies. Several patents are due to expire in the next three years.

The following are some key points regarding the company:

  • DDD’s customers are large pharmaceutical companies under pressure from governments to reduce drug prices.
  • DDD has experienced high profit margins due to the protection provided by its patents.
  • The expiration of these patents poses a threat to DDD’s business, with customers pressuring for lower prices.

Required:
a. Advise the Board of Directors on the possible threats related to the expiration of patents.
(7 Marks)

b. Appraise suitable courses of action DDD might take to maintain its profits in light of the threats identified in part (a).
(8 Marks)

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  • 8 Marks

PM – Nov 2018 – L2 – Q5b – Business Process Reengineering

Discuss six key challenges in developing a management information system for an organization.

Discuss SIX challenges likely to be encountered in the development of an organisation’s Management Information System.

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  • 7 Marks

PM – Nov 2018 – L2 – Q5a – Business Process Reengineering

Discuss different methods for gathering information during the system analysis phase, including their advantages and disadvantages.

During the system analysis phase, the analyst uses different methods to obtain information. You are required to discuss these methods, including their advantages and disadvantages.

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  • 20 Marks

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

Julmat Limited, a manufacturing company, has developed a new product that requires an initial capital investment of N5m. At the end of the product’s life, the capital equipment is expected to have a value of N3m. Julmat Limited requires an Annual Rate of Return (ARR) of 20% on its average investment on products of this type. The new product has an expected life of one year before it will be replaced by a more advanced product.

Production
The new product will be manufactured in batches of 1,000 units using a just-in-time production system.

The first batch is expected to incur a direct labour cost of N100,000, but a 75% learning curve is expected until the cumulative production equals 30 batches.

Thereafter, each batch is expected to incur the same direct labour cost as that of the 30th batch.

The expected direct materials cost for the first batch is N50,000. However, an experience curve is expected to apply to the first 10 batches produced; thereafter, no further savings in material costs per batch are expected.

Other production costs are expected to be N10,000 per batch.

Sales
Sales of the new product are expected as follows for each of the four stages of the product life cycle:

Stage Units Sold Selling Price per Unit (N)
Introduction 10,000 120
Growth 30,000 100
Maturity 60,000 80
Decline 30,000 50

Required:
a. Prepare calculations to show the total direct labour cost of the product for each of the four stages of the product life cycle. (6 Marks)
b. Assuming that there is no experience curve in relation to the product’s direct material cost, prepare a statement that shows the profitability of the new product for each of the four stages of the product life cycle individually and in total for the product’s life. (5 Marks)
c. Assuming that the direct material experience curve applies, calculate the average direct material cost per batch that must be incurred in order for the company to meet its ARR target over the life cycle of the product. (4 Marks)
d. Discuss the concept of life cycle costing and its effect on product pricing strategies at different stages of the product life cycle. Use the Julmat Limited scenario to illustrate your answer. (5 Marks)

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  • 20 Marks

PM – Nov 2018 – L2 – Q3 – Working Capital Management

Prepare cash forecast, profitability, and liquidity ratio for Omegboeji Nigeria Ltd from 2015-2017.

Omegboeji Nigeria Limited is a trading company that specialises in buying and selling of bulk oil. The company is financed by a capital base of N24 million inclusive of reserves in a mix of 30% and 70% of debt and equity respectively. The company has been in the trading business for the past six years and has consistently adhered to its corporate policy on sales, purchases, and inventory management.

The company’s policy on sales is to ensure that sales proceeds are collected as follows:
(i) Cash Sales is 30% of the monthly sales.
(ii) The balance of the month’s sales is to be collected in the month following sales.

The policy on monthly purchases, which is in agreement with the supplier’s policy, is to pay for all supplies in the month following the month of purchase. The general policy of the company is that purchase cost for bulk oil represents 60% of the corresponding annual sales value while its inventory policy is to reserve 30% of the month’s purchases as closing inventory.

The following information is available for the five years 2013 to 2017:

Year Monthly Sales (N’000) Monthly Salaries (N’000) Monthly Rent (N’000) Monthly Expenses (N’000)
2013 12,000 800 400 350
2014 15,000 800 400 370
2015 16,800 960 400 390
2016 18,000 960 400 390
2017 24,000 1,080 400 380

Additional information:
(i) The company will purchase a motor vehicle in July 2016, which will be paid for in two instalments as follows:

  • First payment: 60% of cost in September 2016
  • Balance: To be paid in November 2016
    The cost of the motor vehicle is expected to be N7,500,000.

(ii)Annual depreciation for the motor vehicle will be 20% on a straight-line basis. Monthly expenses include annual depreciation for the motor vehicle.

(iii) The cash balance as of December 31, 2014, was N2,500,000.

(iv) The company’s salaries, rent, and expenses will be paid in the month during which they are due.

Required:
a. Prepare a cash forecast for 2015, 2016, and 2017, showing the closing cash balance at each year-end. (10 Marks)

b. Prepare a forecast profitability statement for 2015, 2016, and 2017. (7 Marks)

c. Determine and comment on the forecast liquidity ratio (current ratio) for 2017. (3 Marks)

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