Free CIMA CIMAPRO19-CS3-1 Actual Exam Questions

The formal merger with Darrell has been negotiated and the legal formalities have been completed.
The two company management teams are working on the integration of the two businesses.
You receive an email from Peter Sorchi, the Chief Executive of the merged company:
From: Peter Sorchi, Chief Executive Officer
To: Senior Finance Manager
Subject: Integration of IT and treasury
Hi,
I need you to advise me on a couple of matters. The attached press clipping shows how sensitive this
is.
We need to integrate the IT and treasury functions of the former Wodd and Darrell. I thought that it
would be a simple matter of identifying the common ground and slimming down both companies’
departments to cover the new entity, but I have the heads of both IT and treasury from each
company arguing that their approaches are better for the merged group and that they should take
the lead.
Wodd’s Treasurer claims to be an expert in natural hedging of currency risks and Darrell’s argues that
her department was highly successful because it makes excellent use of derivatives for hedging. Both
agree only on the fact that they cannot work together. I am afraid that I have to agree with them on
that and the Board will have the difficult decision of choosing between them.
I have the opposite problem with the IT function. The two Heads of IT are excited to be able to
combine their databases and to develop their respective interests in Big Dat
a. They claim that we should retain all of the professional staff in both departments and possibly
even expand the merged IT Department beyond that. Given the rationalisation in all of our other
functions, I do not think that we can agree to that, but I would hate to throw away a worthwhile
opportunity.
Please give me your thoughts on the following:

What approach to hedging is more likely to meet our needs: natural hedging or
heavy use of derivatives?

Ignoring hedging, what other factors should we consider in deciding between the
two treasurers?

Are the two heads of IT likely to be correct in arguing that we need to retain all
existing IT staff in order to exploit synergies in data, particularly opportunities to leverage Big Data?

What would the challenges be in motivating them to reduce their joint staffing levels
and how might we deal with these?
Peter

Reference Material:

You have received the following email from Marcus Svenson, Finance Director:
From: Marcus Svenson, Finance Director
To: Senior Finance Manager
FW: Pricing
Hi,
I am forwarding an email from Sarah Johns.
Sarah has not been with us for very long and this is her first experience of dealing with a currency
price movement.
I am really busy, so I need you to respond to her requests. Please email her as soon as possible.
Marcus
From: Sarah Johns, Marketing Director
To: Marcus Svenson, Finance Director
Subject: USD movement
Hi Marcus,
A lot of our biggest customers are threatening to cancel orders unless we reduce our selling prices.
Timber and associated products are commodity items that are priced in USD, so I thought that our
prices would automatically remain competitive regardless of what happened to the USD. I am
particularly confused over domestic sales, because many of the customers who have threatened to
cancel are based in this country and we invoice them in M$.
Please help me to understand why the M$/USD exchange rate can affect our competitive position in
this way.
I also wish to know why you have chosen to do nothing to hedge against this risk. If you look at the
attached article you will see that the USD is an issue in the business news.
Sarah

Three weeks have passed since you were informed that the relocation would definitely proceed.
You have received the following email from William Seaton, Director of Finance:
From: William Seaton, Director of Finance
To: Finance Manager
Subject: Detailed issues associated with the relocation
Hi,
Congratulations, you are now officially in charge of the transition team! I am confident that you will
do an excellent job and that it will be an opportunity to enhance your career.
I realise that the transition team is expected to reduce the pressure on the Board, but I have been
asked to keep an eye on things and to ensure that your team has everything that it needs. I won’t
interfere, but I will stay in touch.
There are a few matters that I think you should address as a matter of urgency.

Firstly, we need to have plans in place to ensure that our information systems are ready.
What changes will we have to make in order to best align the information system with the company’s
needs? I am not asking about hardware issues or the physical relocation, but the changes to the
information system itself.

Secondly, how might we make use of the data in our own records and external sources to
ensure that the new Head Office is managed as efficiently as possible? Remember that the present
Head Office is a large and complex operation in its own right and it costs a significant amount to run.

Thirdly, our relocation will create a number of challenges for our corporate treasury team. I
need you to identify the key challenges and suggest how they might be dealt with.

Finally, I would like you to identify the criteria against which the success or failure of your
team will be judged once the transition is complete. I need your recommendations to be relevant
and measurable.
William

Reference Material:

Wodd’s Chief Executive, Peter Sorchi has stopped you in the corridor:
"This weak USD is really causing us some serious problems. I think that it is only a matter of time
before the stock market starts to get nervous and I am worried that our share price will fall in the
near future. Thank goodness it does not appear to have fallen by much so far.
I would like to brief the Board on two main issues tomorrow. Firstly, what can we do as a Board in
order to minimise the negative impact of the weak USD on our share price? Secondly, we know the
identities of the key investment analysts who deal with our industry. Would it be a good idea for us
to brief them? Please also consider the ethical issues arising from both of these topics as well as the
more technical matters.
Please let me have a copy of your briefing notes in advance. I need to be able to sound convincing at
the meeting. I’ll also have my secretary refer you to a really helpful blog."

You have received the following email from Marcus Svenson, Finance Director:
From: Marcus Svenson, Finance Director
To: Senior Finance Manager
Subject: News reports
Hi,
I have sent you a link to a news site on the internet. Things are getting complicated in Bravador.
Every Board member has been asked to attend a brainstorming session this afternoon, before the
CEO flies out to Bravador this evening. We will be considering the following four matters:

Is it acceptable for us to develop this forest, given the commitment that we have
made with respect to indigenous peoples’ rights? They have been quoted at the end of the news
article.

Is it fair for the environmental protestors to complain that our operations are
unsustainable?

Would it be unethical to offer to build a village, with a proper school and medical
clinic, for the tribe and to offer them work in our forestry operations?

Is it really a good idea for the CEO to fly to Bravador just to appear on the television
news in his boots and overalls?
Please email me your thoughts on each of these matters before I leave for the meeting this
afternoon.
Marcus

Memorandum of Understanding between Fouce Oil and Slide
It is proposed that Fouce Oil and Slide will temporarily combine their exploration activities, with Slide
taking overall control in recognition of the greater expertise of its professional exploration staff.
This collaboration will work as follows:
1.
Slide will take responsibility for the management and operation of all future exploration
activities for the two companies, with effect from 1 October 2015.
2.
Fouce Oil will second all of its professional oil exploration staff to Slide. Fouce will continue
to employ these staff and will pay their salaries.
3.
Slide will brief Fouce Oil’s professional oil exploration staff on all operational matters relating
to exploration activities for the duration of this arrangement.
4.
The provisions of paragraph 3 will apply to any projects in which Slide participates with third
parties on a farm-in or other joint venture basis.
5.
In recognition of Slide’s greater expertise, Fouce Oil will offer its entire portfolio of existing
exploration rights to this venture, without any charge to Slide. Fouce Oil will also pay for 55% of any
and all exploration costs, leaving Slide responsible for the remaining 45%.
6.
The revenues from all successful discoveries will be shared equally by Slide and Fouce Oil. In
the event that either party wishes to sell an oil well, the other will have the option of purchasing the
other’s rights for 50% of the well’s agreed valuation.
7.
This arrangement will be subject to review at the end of five years and annually thereafter. In
the event that either party wishes to discontinue the arrangement, all ongoing exploration projects
will be drawn to an orderly conclusion.
Signed
Thomas Yip, Chief Executive Officer, Fouce Oil
Andrew Jones, Chief Executive Officer, Slide
14 May 2015

SIMULATION

Hello
I have attached a news article
Arrfield does not set the price for aviation fuel sold at our airports, but we do receive a percentage of
the revenues earned by the fuel companies.
I need your help to prepare for a Board meeting to discuss this matter Please write a paper covering
the following
* Firstly, explain the impact that the criticisms voiced by the environmental campaigners will have on
the frequent PESTEL analysis that Arrfield's Board conducts.
[sub-task (a) = 34%
* Secondly, evaluate the commercial logic of Arrfield's strategy of basing charges for non-
aeronautical services (such as fuel sales and retail activities) on percentages of the revenues
generated by the companies that operate at its airports
[sub-task (b) = 33%)
* Thirdly, recommend with reasons whether Arrfield should attempt to justify strategic decisions to
its shareholders when the commercial logic of those decisions is not immediately obvious
[sub-task (c) = 33%}
Thanks
Romuald Marek
Chief Finance Officer

SIMULATION
A month later, you receive the following email:

Reference Material:
From: Hesham El-Sayed. Independent Non-executive
Director
To: Romuald Marek. Chief Finance Officer
Subject: Collapse of fuel supplier
Hi Romuald
I am writing to give you some advance notice of an internal audit investigation that has been
commissioned by the Audit Committee
Just over a year ago. Planejoos, a newly formed company, approached the management team at
Airfield's Capital City International (CCI) airport and offered to take over refueling operations at
Starport Planejoos offered a higher percentage of revenue than the existing supplier was paying CCI's
management team agreed and appointed Planejoos rather than renew the existing supplier's
contract.
CCI was unable to conduct the usual background and credit checks on Planejoos for two reasons.
Firstly, Planejoos was a new company and so did not have an extensive credit history that could be
checked Secondly CCI was under time pressure to reach a decision on whether to renew the existing
supplier's contract or allow it to expire
CCI's management team claimed that it had acted quickly in order to benefit from the additional
revenue that could be earned from dealing with Planejoos The management team was acting on the
basis that it had an ethical duty to maximise the wealth of Airfield's shareholders and that
maximising revenues from fuel sales through this agreement with Planejoos was consistent with that
ethical duty.
Unfortunately, as a new company. Planejoos struggled to obtain trade credit and the high demand
for fuel put the company's cash flows under extreme pressure Receipts from sales lagged behind
payments for inventory Planejoos has now collapsed, leaving a large trade receivable that CCI will
have to write off as uncollectable CCI had permitted this receivable to accumulate rather
than pressing for payment and so putting Planejoos under further pressure.
Fortunately, the previous fuel supplier was prepared to return to CCI.
Kind regards

Two weeks have passed since the article about Wodd’s role in tax avoidance was published.
Thankfully, the initial reaction was to condemn the celebrities who invest in tax avoidance and little
was said about Wodd’s role in facilitating tax-efficient investments.
You have received the following email from Sarah Johns, Marketing Director:
From: Sarah Johns, Marketing Director
To: Senior Finance Manager
Subject: Forestry certification
Hi,
I am told that you would be a good person to talk to concerning the practical implications of a new
venture that has been proposed.
I have attached a sales brochure that I downloaded from Tabel’s website. Tabel is a competing
forestry company that has similar interests to our own. It has recently launched the certification
scheme that it has described in its brochure. It has no competition for this certification in Marland
because no other company has sought the qualifications required to offer an accredited Forest
Certification Service.
Wodd has the necessary skills to offer a credible Forest Certification Service. Our forestry managers
already aim to exceed all of the requirements set out by the global body. We also have a well-
resourced internal audit department. I believe that we could transfer either forestry managers or
internal auditors to a new external certification department. The transferred staff would complete
the training required by the global body and would sit the associated examinations. We could then
compete with Tabel’s service.
I need your advice on the following:
Could you explain how you imagine that a typical certification investigation would work and the skills
that it would require? That will help us to decide whether to approach forestry managers or internal
auditors and will also enable us to describe the work that they would be doing if they agreed to be
transferred.
What are the challenges associated with motivating and evaluating the investigators in the
certification service and how might we address these?
Sarah
Reference Material:

Six months have passed. Wodd has announced its intention to create a biomass power station in its
North Forest, to be fuelled by trees from the North Forest itself and also waste biomass products
from other timber land owned by Wodd in that area.
The news has received mixed reactions. Younger residents of the small towns close to North Forest
were delighted because their local economy will be boosted. Older residents and those living further
afield within the region complain that the power station will pollute the environment and the
destruction of the North Forest will blight an area of outstanding beauty. A residents’ group has been
established online, with support from Marland’s largest environmental lobbying group, to block the
proposal.
You have received the following email from Marcus Svenson, Finance Director:
From: Marcus Svenson, Finance Director
To: Senior Finance Manager
Subject: Stakeholder issues
Hi,
I have sent you a link to the website created by the protestors against the biomass power station.
This is causing serious problems because we still need to gain formal Government approval, although
the Government supports biomass as an energy source as it is far cleaner and more sustainable than
fossil fuel and far less controversial than nuclear. Needless to say, the press has picked up on this and
is starting to run the story.
We had reached agreements in principle with Marland Bank for funding for this project and with a
civil engineering contractor for the construction work, but both are now nervous about signing
contracts because neither wishes to be associated with an environmental scandal.
I need two things from you.
Please draft the body of a press release that we can issue in response to the claims on the protestors’
website. Add a few comments to explain what your arguments are trying to achieve (I don’t want us
simply to state that we disagree with the protestors, I want us to offer meaningful arguments in
response). Just write your draft as part of your reply to this email and I will circulate it to the other
Board members for approval before we submit it.
Please suggest some safeguards that we can put in place to enable us to retain the support of the
bank and the civil engineer throughout this project.
Marcus