10. B.

Issues 17 A Operational risks - EPOS does not capture data correct, results in losses or poor information - Linkage between shops and head office does not work - The staff information is incorrect against each sale - Focus on sales could result in compliance issues as these are secondary - The pressue on staff to hit targets has resulted in absenteeism which is health and safety issue - Could also lead to examples of fraud. Individual sales are not being checked Risks with new management control system - Lack of objective performance standards. Competitor comparison and discounting impact on profit - Suboptiomal performance standards. Sales max good when gorwing, now min company shouod change to repeat business, higher margin products or returns - Competing stores. Shop around - Customer messages. Different products / confidence confuse customers - Staffing - Reputation - Technology B Professional conduct this process may increase pressure to not behave correctly and there is no mention of controls stopping this Integrity - Integrity could be lost through such aggressive personel treatment Targets based on past experience. Should be forward looking Based on profitability not risl and return. IS can only support profitability Last major strat review 4 years ago. Before downturn. Change in investor demands, needs to be appreciated in strategy. Pressure to generate ST profits is risky Mortgages exceed property values. Credit risk Forcast does not have any flexibility or scenarios built in. Therefore risky Wage inflation < House inflation Short term funding for long term loans. Northern Rock

Professional competence Motivation is Confidentiality Objectivity Duty to customers exaggerated claims of own products. Possible lack of care Staff stress Performance measures based on shop performance. Disciplinary seems un fiar Objective setting lack of competence and care by not using good objectives Lack of guidance due care

20 Input Controls Process Controls Output controls Or Financial Financial Qualitative / Quantitative Predetermined discounts in the system. Would reduce customers disputes. Credit limit controls credit manger, formula or credit authorization Management should have more control over the size and approach to discounting Commisions should be based upon settled sales not on sales made. This way want better paying customers. Or discounts are staggered Responsibilities should be split in the department Revenue should be compared to expected revenues in sales department Credit department should also have performance targets.

Internal Control Envrionment atttitudes, awareness and actions of directors and management towards internal controls.. Incorporating style, culture and ethics. Structure , integrity and competetiecne of staff.

KPI features - pressures to increase sales excessive risk taking - organization structure segregate - Target setting determined by other parts of organization - Internal Audit include this 29 derivatives 32 A 1 done 2 B Took decision to hedge out ir risk Makes planning easier and prevents chance of risk going against you. Not possible withour some potential loss Shareholders focus on the lost money, but that would have taken foresight and a gamble which is not RGT comparative advantantage. If most of the assets or floating then fine. But unlikely as construction company.

43 ai Issue is if currencies appreciate / depreciate E peso - many receipts and in same currency - short time frame between start of transaction and settlement - series of smaller transactions Euro - limited to profits - payments are annual. Therefore up to a year between transactions - size is unknown Hedging

E peso - natural to an extent - Using E to supply is business in N. Therefore increasing natural hedge - Loan in foreign country - Currency swap to restructure liabilities Euro Need for hedging. Purchased on annual basis Forward contract. Put options Borrowing Currency swap

Entering a JV - share risk - cultural risk - manufacturing operations problems over terms corruption

Loan in Peso - Hedging - Government pressure - Not using equity Terms Level of gearing

48 MD comments on hedging - correct that g/l equally as likely - three country diversification is not enough - hedging will help forward planning - prevent any sizeable losses, and counrties moving in same direction Relative risk analysis - higher risk requires higher reward - financial risk - political risk - cultural risk - economic risk

54 Supplier problems - complicated supply chain - local problems - delay manufacturing - delay product launch buy patent buy supplier tighten contracts - SLA increase communcations

Manufacturers - fail to meet deadline - no capcity to increase production - deliver delayed tighten controls and impose penalties plan for increase in production agree dfeliver times report on delays

Quality - quality of Ws products - loss of sales - impact of higher rates of production - qual;ity checks quality tests review factories plans give reliable suppliers more work refunds media

Importance of adequate IT system Suppliers - risk: Manufacturers speed up processing avoid issues with dents etc improve quality ensure vans are at locaritons / customer feedback maintain information forcasing / sales etc

ecommerce larger market / competitive advantage not losing information credit car ddetails reputational risk loosing links man power / cost Viruses - cost demand due dates damage identity confirmation identity for police

Control implications for the matters Notebook computer linked viruses taking company property accesses insufficient supervision / poor example

Different type of PC 55 weakness to viruses illegal use of software central IS support internal environment lack of standrdisation

56 Five factors external audit should consider when performing risk assesment of Ks IT dependence on IT - fundemental threat to future, threat prevention, contingency Centalisation personel, HR controls, transaction reviews Illicit access why might occur,, access and virus controls Protection of income limits on downloads Systems development better service avoid fraud. Internal Audiit Impact

Risks of complaints Risks: Reputational risk with customers / advertisers Withdrawal by credit card companies Refunds

Risk Management 35 Risks expanding into Europe via franchising - currency risk o lower remittance o lower repayments on the loans - logistics risks - economic risks - tax risk Risks in issuing euro loans - depreciation of euro results in the value of these assets becoming worth less and the future income stream translating to be less. - Risk management o Borrow in euros o Currency swaps o Natural hedges (i.e. buy more things locally) risk analysis expert systems to monitor fraud controls over customers allowed to use service secure payment method